NEW YORK (CNN/Money) -
Altria Group Inc. stock tumbled Wednesday after a Morgan Stanley analyst expressed worries over an Illinois appeals court hearing on reducing a bond payment in a class-action suit against the cigarette maker.
Illinois' Fifth District appeals court held hearings Tuesday in Mt. Vernon, Ill., to determine whether Judge Nicholas Byron had the authority to cut the bond required while Philip Morris appealed the $10.1 billion verdict in a class-action case, now known as Price vs. Philip Morris.
Shares of Altria (MO: down $4.07 to $42.70, Research, Estimates), formerly known as Philip Morris Cos., sank 9 percent to on the New York Stock Exchange.
The litigation concern spread to other tobacco stocks, which were also affected by a report of merger talks between R.J. Reynolds and London's British American Tobacco, analysts said.
Shares of R.J. Reynolds (RJR: down $1.50 to $36.63, Research, Estimates) sank more than 4 percent while Loews Corp. (LTR: down $0.82 to $48.24, Research, Estimates) also fell. R.J. Reynolds and British American Tobacco (BTI: Research, Estimates) both declined to comment on the reported merger talks.
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Morgan Stanley analyst David Adelman, who has an "overweight" rating on Altria and an "attractive" rating on the tobacco sector, has a price target of $62.00 on the shares, according to Reuters.
In March, Illinois Judge Nicholas Byron ordered Philip Morris USA to pay $10.1 billion for deceiving smokers into thinking "light" cigarettes were safer than regular ones.
He also ordered Philip Morris USA, Altria's domestic cigarette unit, to post a $12 billion bond to protect company assets from being depleted during appeals.
Weeks later, Byron cut the appeal bond to a $6 billion term note that Altria owes Philip Morris USA, plus hundreds of millions in other deposits. The lowered bond amount removed any immediate fears that Philip Morris USA would have to file for bankruptcy protection.
The court "will likely find" that Byron "lacked the authority to alter" the bond, Adelman said, "which will increase the market's legal anxiety, in our view."
Adelman also told Reuters that he believes second-quarter unit volume growth at Philip Morris International, Altria's international tobacco unit, will likely be up by only 1 percent-to-1.5 percent, while the market was expecting about 4 percent volume growth.
-- from staff and wire reports
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