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News > Economy
$206B tobacco deal unveiled
November 16, 1998: 4:23 p.m. ET

Settlement curbs tobacco advertising, sets $1.5 billion anti-smoking campaign
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NEW YORK (CNNfn) - Cigarette makers and eight state attorneys general Monday unveiled a $206 billion settlement of state lawsuits that further limits tobacco advertising and includes a multimillion dollar fund aimed at reducing teen smoking.
     R.J. Reynolds, Philip Morris, Lorillard and Brown & Williamson over the weekend agreed to the proposal, under which they will fund a $1.5 billion anti-smoking campaign and open previously secret industry documents.
     In addition, the companies will shoulder increased restrictions on tobacco advertising, ending cigarette ads on billboards and public transportation, as well as on promotional gimmicks, such as hats and T-shirts. The deal bans the use of cartoon characters, such as the once-popular Joe Camel, in any tobacco advertising, though it will permit sports promotions of brand labels in retail stores.
     Finally, cigarette makers agreed to establish a $250 million foundation dedicated to reducing teen smoking.
     This agreement "won't end youth smoking in America," said Washington Attorney General Christine Gregoire. "But it is refreshing and an essential step forward." (304K WAV) or (304K AIFF)
     "This plan will get Big Tobacco off the backs of our kids," added New York Attorney General Dennis Vacco. (280K WAV) or (280K AIFF)
     The settlement protects the tobacco industry from lawsuits aimed at recovering state healthcare costs linked to treating smoking-related illnesses.
     "While we remain confident in our legal defense, we are prepared to accept this proposed agreement as a way to end this unique litigation and join in a common sense approach to addressing important tobacco issues," the tobacco companies said in a joint statement.
     The draft agreement was negotiated by the attorneys general of California, Colorado, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania and Washington. It must still be endorsed by the other 38 states that have brought suits against the tobacco industry.
     If approved, the deal will settle those lawsuits now pending and allow the seven states that have not yet filed suit to recoup Medicaid expenses caused by smoking-related ailments.
     Four states - Florida, Minnesota, Mississippi and Texas - have already settled separately for a total of $40 billion.

    
Clinton praises deal

     Earlier, President Clinton applauded the agreement, calling it an "an important step forward," but a White House spokesman said it would not end the president's push for universal tobacco regulation.
     The spokesman said that in addition to renewing his calls for comprehensive cigarette legislation in 1999, Clinton will seek official tobacco regulatory powers for the Food and Drug Administration from the Supreme Court.
     An earlier $368 billion national settlement proposal would have granted that power to the FDA, but that agreement fell apart in Congress last summer, when politicians added restrictions and tried to get tobacco companies to pay as much as $516 billion.

    
Analysts upbeat

     Negotiators from both sides plan to meet Friday, when state attorneys general must decide whether or not to sign the agreement.
     Kim Wallace, political analyst at Lehman Brothers, said the states would likely sign onto the deal.
     "My expectation is that significant numbers if not most of them will move to accept the deal, largely because it is money on the table," he noted.
     He also considered the agreement very good news for the tobacco industry.
     "Litigation is the No. 1 risk to the industry," he said. "This reduces a great deal of potential litigation."
     Martin Feldman, a tobacco analyst for Salomon Smith Barney, agreed and said the deal could be good news for tobacco stocks.
     "If a settlement can be achieved… valuations would be expected to improve quite substantially," Feldman said. "I could see Philip Morris perhaps getting to around $70, but that's a big 'if.'"
     Feldman also said the proposal could boost cigarette prices.
     "It's the consumer who's going to pay for this deal," Feldman said. "Cigarette prices are going sky-high." The analyst predicts prices could reach $3 a pack in the next four years.
     All parties involved will release a formal announcement on Nov. 23.
     Shares of Philip Morris (MO) closed down 3/4 at 53-5/16 , while RJR Nabisco Holding Co. stock (RN) lost 5/16 to 30-5/16. Loews Corp. (LTR), parent company of Lorillard, shed 7/16 to 99-5/8. Back to top

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