Some thoughts on the govt's aim toward settlement, from Schwab, this morning:
Mark McMinimy – Tobacco: Is Justice Seeking a Settlement?
It appears that Attorney General John Ashcroft has assembled a team to explore the possibility of settling out
of court the Justice Department’s civil racketeering lawsuit against domestic cigarette makers, including
Philip Morris (MO 45)², RJ Reynolds (RJR 52), Brown & Williamson (BTI 15.10), Lorillard (LTR 66)
and Liggett (VGR 32).
We have consistently argued that the Bush Administration would eventually move to settle this suit, but felt
it was more likely to be later rather than sooner.
The timing would be odd since Justice only recently asked Federal District Judge Gladys Kessler, who is
overseeing the litigation, to reinstate a large part of one of medical care recovery claims that she previously
had dismissed. But it may well be that the Bush Administration realizes it would be harder to reach a
politically credible settlement if Judge Kessler decided to reinstate this claim.
Although the threat posed by the suit was, in our view, materially diminished by the Bush election victory
last year, our sense is that it continued to be perceived as an unquantifiable risk overhanging the sector for
some investors.
If the story is borne out, and it may well be, then we believe any deal would need to include two elements to
be politically credible. This becomes a larger consideration now that the Democrats control the Senate and
can call hearings and so on. The two key elements would be:
1. Some financial compensation.
2. Injunctive relief that addresses issues such as marketing and advertising that play into youth smoking.
Ironically, this would be much easier to accomplish if the Supreme Court decides in favor of Massachusetts
in a case that is currently under consideration. Cigarette makers are challenging restrictions imposed by that
state on advertising that was particularly accessible to children.
Unless both these elements are addressed, a settlement could be expected to provoke a significant political
backlash in the Senate where key Democrats and a few Republicans would likely jump all over it as a
sweetheart deal.
doc
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