News & Trend

July/August 2007

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Companies Can Arbitrate MSA, Says New York

A state court finds in favor of tobacco makers.

The New York Court of Appeals ruled that tobacco companies participating in the 1998 agreement that settled tobacco litigation with most states can go to arbitration to seek a reduction in their settlement payments.

In line with decisions by most other state courts, the ruling gives tobacco companies the opportunity to seek a reduction in payment amounts if they lose market share to other cigarette makers because of restrictions in the agreement, which also included marketing restrictions.

According to the findings of an independent auditor, companies in the settlement did lose market share in 2003 and restrictions from the agreement were “a significant factor contributing to this loss.” But the auditor accepted an argument by the states that they had diligently tried to collect payments from tobacco companies that did not sign the agreement and did not reduce the payments.

Tobacco companies—including Altria Group’s Philip Morris USA and Reynolds American Inc.’s R.J. Reynolds Tobacco Cos.—countered that the auditor could not presume the states were diligently enforcing statutes geared toward collecting payments from the nonsignees and sought arbitration. •

Altria Plans Snus Test

Altria Group Inc. will begin to test snus, a new type of smokeless tobacco, in Dallas/Ft. Worth in August. Small pouches of dried tobacco that users place in the mouth, snus enable consumers to continue to enjoy tobacco use in areas where smoking is not permitted.

Marlboro Snus will be available in four varieties: rich, mild, mint, and spice, according to Philip Morris, which developed the line after the concept became popular in Sweden. Marlboro Snus follow another Philip Morris introduction to the smoke-free, spit-free category, Taboka, which it first tested in Indianapolis last year. •

Altadis Rejects Imperial Offer

$16 billion is not enough, says the maker of Gauloises cigarettes.

Imperial Tobacco Group Plc.’s 12 billion euro ($16 billion) bid was rejected by Madrid-based Altadis SA in a regulatory filing last week, on the terms that the price was still too low for the company.

The company said that the takeover proposal “doesn’t reflect the strategic value of the company nor the diversity of its unique assets, nor its outlook for future growth,” and asked advisers to consider the “best options” for the company, its shareholders, and employees.

Imperial Tobacco, meanwhile, says the offer—47 euros per share, up from its initial bid of 45 euros per share— “represents a full and fair price” for Altadis. Should negotiations eventually be successful, Altadis would make Imperial the world’s fourth-largest traded cigarette maker. It would own Fortuna cigarette brand in addition to the world’s biggest cigar company, and receive the Marquise brand in Morocco, where smoking is on the rise and where Altadis currently holds the monopoly on tobacco distribution.

Analysts have estimated that the acquisition could enable Imperial to cut as much as 225 million euros

in costs by closing redundant factories, eliminating sales staff, and moving production to countries with inexpensive labor costs, including Morocco. •

USSTC Plans New Line

Cope® Premium Moist Smokeless Tobacco will debut in September

U.S. Smokeless Tobacco Company (USSTC), a subsidiary of UST Inc., announced today that the company will introduce an all new line of premium moist smokeless tobacco products designed to make the Copenhagen, the company’s core brand more approachable for adult smokers. The line will become available at retail stores beginning September 17.

Featuring smooth, natural tobacco tastes in three long cut varieties: Smooth Hickory, Whiskey Blend Flavor, and Straight, the Cope line is named after a nickname bestowed on USSTC’s Copenhagen brand—a move that reflects the company’s confidence in its brand equity.

“Copenhagen has the strongest brand equity and loyalty in the MST category,” says Charles Stafford, brand director, who is leading the initiative. “Last year’s successful launch of Copenhagen Long Cut Straight was proof that adult MST consumers have a strong desire for products that combine the unmistakable natural flavor experience of Copenhagen with smoother taste profiles. Our new Cope line will be entirely dedicated to that pursuit.”

New Cope Smooth Hickory, Cope Straight, and Cope Whiskey Blend will be packaged in code-dated plastic cans to ensure optimal freshness and shelf life. In keeping with Copenhagen tradition, all Cope products will have an embossed metal lid that incorporates a round disk of color unique to each taste profile.

The Cope launch will be supported by national advertising campaigns in adult-oriented magazines, adult sampling programs, direct mail, eye-catching point-of-sale materials, 15-can pre-packed promotional displays and an age-verified web site, www.FreshCope.com. With the launch of Cope, the line-up of Copenhagen Snuff, Copenhagen Long Cut and Copenhagen Pouches will remain unchanged. •

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Court Rules Against PM

Supreme Court rejects Philip Morris’s attempt to move consumer suit.

In a unanimous decision, the Supreme Court rejected a bid by PM to move a consumer lawsuit out of state court—responsible for some of the biggest verdicts against tobacco makers—to the federal system. PM will now face having the proposed class action case—alleging that Philip Morris misleadingly advertised “light” cigarettes as delivering less tar and nicotine than they actually did—heard in front of an Arkansas state judge. (As of May 1, Philip Morris faced 19 class-action lawsuits concerning the marketing of light or ultra-light cigarettes, down from 25 a year ago.)

Previously, PM parent company Altria successfully argued to have pending cases switched from state courts to federal courts, where some were dismissed. In its attempt to do so with the current case, the company cited a federal law dating from 1812 that allows removal to federal court when a private party is acting under government direction. PM said that it was following a test prescribed by the Federal Trade Commission determining the tar and nicotine content of the light cigarettes.

A spokesperson for Philip Morris USA said the ruling “will have minimal effect on the class actions. •

$100 Million Payment Sets Record

General Tobacco makes its largest MSA payment.

At a time when many manufacturers are seeking MSA relief (see related story, p. 10), General Tobacco, maker of GT One, Bronco, Silver and Vaquero little cigars, made its largest payment to the Master Settlement Agreement (MSA) to date of $100 million. The payment is part of its commitment to the multi-state agreement by tobacco companies to set strict guidelines for tobacco marketing and advertising, in addition to finding a $1.5 billion anti-smoking education campaign.

General Tobacco has given approximately $375 million to date, since joining the MSA in 2004, according to the company. “General Tobacco’s voluntary participation and payments to the MSA showcase our commitment not only to the tobacco industry, but to our communities and youth as well,” said J. Ronald Denman, executive vice president of General Tobacco. “We are dedicated to corporate responsibility, and intend to honor that by always providing superior quality tobacco products while exhibiting the highest ethical tandards in all business dealings.”

The MSA account was formed in 1998 with the Attorneys General of 46 states and five territories that changed the marketing, advertising and promotion for tobacco.

General Tobacco voluntarily joined the MSA in 2004 to support the goal of public health and youth smoking reductions. •

Chicago Nixes On-Stage Smokes

Politicians overrule scripts by banning cigarettes on stage.

Smoking in public has been illegal in Chicago since 2005, but the Illinois House is taking that ruling even further with a statewide ban that Governor Rod Blagojevich reportedly supports: fining actors who defy the public ban while in character and on the stage.

The move has stirred up controversy as some legislators oppose the idea of asking local directors and producers to snuff out all references to smoking in the plays they present, arguing that smoking plays a starring role in some of the most famous scenes from plays like Streetcar Named Desire and Twelve Angry Men. In fact, many view on-stage smoking as integral to the mood and storylines of plays—and the removal of it an insult to the intelligence of the audience rather than a courtesy to public health. •