Tobacco Firms Vow To Fight Gov't Lawsuit
NEW YORK (Reuters) - U.S. tobacco companies, led by industry leader Philip Morris Cos. Inc, vowed not to settle the civil lawsuit filed this morning by the Justice Department seeking to recover the $20 billion in smoking-related costs incurred by the gove
``We do not believe that this kind of politically-motivated lawsuit is in anyone's interest,'' the world's largest tobacco company, Philip Morris, said in reaction to the filing. ``We will mount a vigorous defense and will not settle this lawsuit.''
At a hastily-called news conference, an attorney for the New York-based company, said the government has been acting as if it had been unaware of the health risks associated from smoking cigarettes.
``After all, it was the federal government in 1964 that issued the first surgeon general's report outlining the dangers of smoking,'' Greg Little, associate general counsel for Philip Morris told reporters.
``It was the federal government that mandated the health warnings starting in 1966 that appear on every single cigarette sold in the United States,'' he added.
Wall Street analysts said that though the news pushed shares lower in Wednesday trade, the expected civil suit is already factored into tobacco share prices and predicted an all-out government victory was unlikely.
``The (U.S. government's)legal standing remains extremely doubtful, based on the fact that government has been an industry partner through the amount of industry regulation and collection of taxes. (This) makes it look dubious at best that a claim will be successful,'' Martin Feldman of Salomon Smith Barney said.
``This suit is fully priced into stocks,'' he added. ''Clearly we have to see the reaction of the court to the filing, but I do not expect stocks to fall any further as a result.''
Tobacco stocks rebounded from Wednesday morning's lows spurred by speculation that a Federal filing was imminent.
Shares in Philip Morris Cos Inc., makers of the popular Marlboro brands, were off 1-1/8 at 34-1/2, while R.J. Reynolds shares, which makes Camel cigarettes, were off 1-3/16 to 27-5/16.
Shares of Loews Corp. (NYSE:LTR - news), which operates Lorillard Tobacco Co., were off 1-15/16 to 71-11/16 and the ADRs of Brown & Williamson Tobacco Corp., a unit of British American Tobacco Plc, were off 13/16 to 16.
Bonnie Herzog, analyst at Credit Suisse First Boston, said tobacco stocks should hold their own throughout the rest of the court proceedings as investors get a better feel for the government's position.
``While stocks will trade down on the news initially -- they should rebound as investors start to understand what the case is all about and know what the defense is,'' Herzog said. ``Then stocks will probably trade in a tight range as the case is worked through,'' she added.
In a news conference this morning unveiling the landmark civil lawsuit, Attorney General Janet Reno said that the United States alleges that for the past 45 years, the companies that ''manufacture and sell tobacco have waged an intentional, coordinated campaign of fraud and deceit.''
But analysts said it's not an open and shut case.
``The government has to prove tobacco companies are at fault,'' Marc Cohen of Goldman Sachs said. ``More importantly, they must prove why people smoke? Is the government being put in a position where it is treating these sick people because something tobacco companies did or because people wanted to smoke?
``The government can allege anything they want and have an audience for it, but thy have to prove it in a courtroom and that's no small task,'' Cohen said.
Jim Brucculeri of Merrill Lynch pointed out that the Federal government is taking in around $110 billion in excise taxes.
``On that basis alone, you could say the government is actually in cooperation with tobacco,'' he said. ``The government needs to overcome hurdles like this in the case and I'm not so sure they are surmountable.''
Little would not comment on what kind of legal strategy the company plans to take.
``We are going to be spending a long, long time pulling together the facts,'' Little said. When asked how long a trial would last if company efforts to dismiss the cased fails, he said, ``It's so far down the road that I don't know.''