Tobacco Giants Refuse to Follow Liggett Offer

Article excerpt

The nation's cigarette Goliaths, blindsided by an industry David, yesterday vowed to continue their defense against billions of dollars in claims brought by smokers.

In a stunning break with the rest of the industry, Liggett Group Inc., the smallest of the nation's five major tobacco companies, yesterday said it will settle a class-action suit in the first such offer by a tobacco company.

R.J. Reynolds Tobacco Co., the nation's No. 2 tobacco producer, reacted to the news with a scathing written statement saying it has "no intention" of settling any claims.

After years of litigation, Liggett's settlement offer is the first sign of capitulation on the part of the nation's $45 billion tobacco industry, which has been besieged with lawsuits from smokers and state governments trying to recoup smoking-related health costs.

Although Liggett admits no wrongdoing in the proposed settlement, its offer has cracked the cigarette industry's unified front. The offer must be approved by the U.S. District Court in New Orleans, where the class-action suit involving 60 law firms was filed.

Wendell Gauthier, an attorney for smokers suing the tobacco companies, said the settlement terms Liggett received won't be available to the other companies, which will face higher costs.

"We hope there will be a domino effect. . . . This is like a war. We have won the first skirmish," Mr. Gauthier said in New Orleans. Tobacco stocks, with the exception of Liggett parent Brooke Group Ltd., tumbled yesterday, lopping $3 billion off the market value of Philip Morris Cos. alone.

Liggett's offer, which analysts called extraordinarily shrewd, not only would save the company $10 million a year for litigation, it would cost it relatively little and release it from claims that its Chesterfield and Eve cigarettes are addictive.

The deal would give Liggett the right to retract its offer if the country's other major cigarette manufacturers - Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard - won their cases.

Besides dealing with the class-action suit, Liggett's offer would settle suits by the attorneys general of Florida, Massachusetts, Minnesota, Mississippi and West Virginia seeking payment for smoking-related claims.

But the settlement is a long way from being final. Minnesota rejected the terms, saying Liggett didn't offer enough money and failed to deliver an ironclad promise to stop marketing tobacco to children.

"The tobacco industry has lived for too long with the possibility of financial catastrophe from product liability lawsuits that could destroy the industry," said Bennett S. LeBow, chairman and chief executive of Miami-based Brooke Group.

"Liggett's assets will no longer be held hostage by the tobacco litigation, and we will be free to run our business without this distraction."

That business likely includes a merger with R.J. Reynolds, which controls more than 25 percent of the U.S. cigarette market.

Liggett's deal paves the way for the long-sought merger by giving Reynolds the same settlement terms in the event of a merger and extracting a promise from litigants that they won't stand in the way of a merger if the tobacco giant spins off from its parent, RJR Nabisco Holding Corp.

R.J. Reynolds has resisted a spinoff for fear such a move would invite more legal challenges and damage its credit rating. …