Philip Morris may get $12 billion break

Bond may not be required for an appeal, judge says

April 09, 2003|By BLOOMBERG NEWS

EDWARDSVILLE, Ill. - Philip Morris USA, the largest U.S. cigarette maker, may not have to post a $12 billion bond to appeal a $10.1 billion damage verdict, an Illinois judge said.

The Altria Group Inc. unit may have other options, including a "guarantee" from its parent, Illinois Circuit Judge Nicholas Byron told a court hearing yesterday. "I want to see this company appeal," he said. "I don't want to put the company out of business."

In a related ruling, Cook County Circuit Judge James Henry in Chicago blocked Illinois for 10 days from collecting the $3 billion punitive-damage portion of Byron's judgment. The remaining $7 billion is compensation Byron awarded to consumers he said were duped into believing that Philip Morris's "light" cigarettes weren't dangerous.

Philip Morris said it doesn't have $12 billion, and credit-rating companies say it might face bankruptcy if it's forced to post the money. The company has received support from 37 states that were part of a $208 billion settlement with the tobacco industry in 1998. The states are concerned that Philip Morris won't be able to pay the next installment on the settlement: $2.5 billion that's due April 15.

In all, the tobacco industry agreed to pay $246 billion through 2025 to the 50 states, much of it for public health programs. Philip Morris, which makes such brands as Marlboro Lights, owes about half the total.

Jeffrey Harris, an economics professor at Massachusetts Institute of Technology who testified for Philip Morris customers, told Byron yesterday that the company can raise prices to pay the appeal bond.

"It's reasonable to investigate whether Philip Morris could raise the price of Marlboros," Harris said. He added that Marlboro is gaining market share among young smokers.

Altria's shares rose 98 cents, or about 3 percent, to $30 on the New York Stock Exchange yesterday. Shares of the New York-based company have slipped about 14 percent since Byron ruled against it on March 21.

Forcing Philip Morris to post the bond could be "bankrupting" because it's "multiple-times the net worth of the company," said Philip Morris lawyer George Lombardi. "The bond has sent economic shockwaves throughout the country."

Philip Morris USA accounted for 29 percent of Altria's operating income, or $5.1 billion, last year. The tobacco company's sales were $18.9 billion, or 23 percent, of Altria's total.

Byron, who at one point said he may take testimony from witnesses later this week before deciding the bond question, closed the courtroom to spectators and encouraged lawyers for Philip Morris and the consumers who sued the company to seek a compromise.

The judge said he won't hold Altria responsible for any bond that Philip Morris must put up.

"I will respect the corporate status of Altria," he said. "I will consider Philip Morris USA as its wholly owned subsidiary but as a separate corporation." The hearing ended yesterday without a resolution.

Byron made it clear yesterday that he didn't regret his damage award against the company. "I was seriously considering awarding $14 billion, maybe $21 billion after going over and reading the transcript of this trial," he said.

Byron ruled that Philip Morris customers were deceived by the company's advertisements into believing that light cigarettes are less harmful than the regular ones. There has been no medical proof that suggests that is true.

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