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Thu 17 Aug, 2006 09:37 pm
Judge's Ruling Means Altria May Split
By VINNEE TONG AP Business Writer
© 2006 The Associated Press
NEW YORK ?- A federal judge ruled against big tobacco Thursday in a long-awaited racketeering decision but didn't order financial penalties, sending share prices up in aftermarket trading and increasing the likelihood that Altria Group Inc. will begin its planned spin-off as soon as this month.
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The decision from U.S. District Judge Gladys Kessler was the last major legal obstacle the industry faced. Removing a degree of uncertainty by resolving an undecided case, the verdict was also a final hurdle for Altria, the world's biggest cigarette maker.
It can now start to break itself into three separate businesses, Citigroup analyst Bonnie Herzog wrote in a research note.
"Even if the judge orders the industry to pay $14 billion over 10 years, we believe this decision is favorable enough for the board to give the green light to management," she wrote. "Therefore, it is likely that an announcement regarding the spin-off of Kraft Foods could be announced during the company's board meeting on Aug. 30."
Herzog reitered a strong buy rating on Altria.
Kessler ruled that the cigarette makers violated racketeering laws, and ordered them to use advertisements and packaging to warn consumers of the addictiveness of tobacco. She ruled that over decades cigarette makers conspired to deceive consumers about the health hazards of smoking. The companies in turn deny they committed fraud.
However, Kessler said she was unable to order financial penalties, due to a previous ruling by an appeals court.
Edward Sweda, a senior attorney with the Tobacco Products Liability Project at Northeastern University, said, "This is obviously an incredible important milestone. The ruling means, among other things, that from this day forward, the tobacco company defendents are adjudicated racketeers. That finding will reverberate throughout the country and the world."
The share prices of the major American tobacco producers rose slightly in aftermarket trading on Thursday.
Shares of Altria closed on Thursday up a penny at $80.75, and rose 3 percent to $83.09 in aftermarket trading. Loews Carolina Group shares closed down 4 cents at $57.31, but climbed 1.3 percent in aftermarket INET electronic trading to $58.05.
Shares of Reynolds American Inc., which closed down 54 cents at $64.07, were up 1.5 percent to $65 in after-hours activity.
Houston chronicle
Philip Morris USA and Altria Will Seek Appellate Review of Decision in DOJ Case
08-17-06 08:11 PM EST | NEW YORK --(BUSINESS WIRE)--
Philip Morris USA and its parent company, Altria Group, Inc., will seek review of U.S. District Court Judge Gladys Kessler's ruling today that PM USA, Altria Group and the other cigarette companies violated civil provisions of the Racketeer Influenced Corrupt Organizations (RICO) Act.
The court refused to order the companies to pay $10 billion for a smoking cessation program or $4 billion for a "counter-marketing" youth advertising program sought by the government but found, among other things, the companies must remove descriptors such as "light" or "ultra light" from cigarette packages and publish statements concerning smoking and health issues.
"Philip Morris USA and Altria Group, Inc. believe much of today's decision and order are not supported by the law or the evidence presented at trial, and appear to be Constitutionally impermissible or infringe on Congress' sole right to provide for the regulation of tobacco products," said William S. Ohlemeyer, Altria Group vice president and associate general counsel.
"Moreover, the conclusion that PM USA and Altria are reasonably likely to engage in future wrongdoing is flawed in light of the profound and permanent changes in the way cigarettes are marketed today, including requirements imposed by agreements with the state attorneys general and other voluntary - and irrevocable - changes made by our companies," he said.
Ohlemeyer said the companies are studying the lengthy decision and will decide whether to first seek further review in the trial court or appeal directly to the U.S. Circuit Court of Appeals for the District of Columbia.
Shares increased more than $3 today.
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