ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, April 23, 1997 TAG: 9704230056
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ASSOCIATED PRESS
Securities analysts are estimating that cigarette prices will be raised by 40 cents to 50 cents a pack so the industry can pay the staggering $250billion to $300 billion settlements that reportedly are being discussed.
Cigarette makers are expected to lean heavily on smokers for the megabillion-dollar payments the industry would face as part of a settlement of health claims.
Securities analysts are estimating that cigarette prices will be raised by 40 cents to 50 cents a pack so the industry can pay the staggering $250 billion to $300 billion sums that reportedly are being discussed.
A 50-cent increase would boost cigarette prices by about 28 percent to an average of about $2.30 a pack.
A price increase wouldn't be enough to foot the bill, in part because it likely would reduce cigarette sales. Analysts said, however, that the tobacco companies could cut marketing and legal costs to help offset the required payments.
The industry is pushing for immunity from health claims in exchange for obligating itself to financing a fund over 25 to 30 years that would compensate sick smokers and the governments that have been paying health care costs of illnesses linked to smoking.
The top tobacco businesses, led by Philip Morris Cos. and RJR Nabisco Holdings Co., have been in settlement talks since early this month with several state attorneys general, lawyers who have sued the industry and a prominent anti-smoking activist.
Gary Black, tobacco analyst for the investment firm Sanford C. Bernstein & Co. Inc., told his clients in a report last week that he expects a settlement pact to be reached within eight weeks.
If it called for $250 billion in payments over 25 years, it would cost the industry $10 billion a year. The annual payment would exceed the $7.7 billion in operating profits that Black estimated for the industry in 1998.After taking into account lower sales because of higher prices, a price increase of 50 cents per pack would generate $8.3 billion in new revenue.
The industry could get an additional $300 million more by trimming the $600 million Black estimates it spends each year on legal costs. The settlement itself would free the companies to cut such costs.
Black said the industry could save the $1.4 billion balance needed for the settlement payments by trimming its $5.7 billion annual marketing spending by 25 percent. The settlement is expected to impose new limits on tobacco marketing, anyway.
LENGTH: Medium: 54 linesby CNB