BAT shares bounce back on US ruling

BAT shares added 23.5p, or 5 per cent, to close at 462.5p yesterday after a favourable ruling in a Florida court reversed the recent tide of anti-tobacco judgments. The shares continued to rise in New York after the close in London as the market welcomed a respite from the recent barrage of legal challenges in the United States and the threat of new anti-smoking regulations.

The relief came after a federal judge in Florida threw out large portions of a medical lawsuit against the industry. The news of the ruling, delivered late on Monday, boosted the stocks of many of the tobacco firms cited in the suit, including Philip Morris, which rose $2.125 (pounds 1.37) in early New York trading to $94.125.

"It's like these stocks have been through a very bad storm and now you're beginning to see the sky brighten a bit," commented Thom Brown of the New York money management firm Rutherford Brown & Catherwood.

Tobacco stocks have been repeatedly battered in recent weeks as the anti-smoking movement has continued to gain ground in the US. Most recently, President Bill Clinton endorsed proposals from the Food and Drug Administration (FDA) to classify cigarettes as products subject to regulation.

In the Florida case, Judge Harold Cohen threw out 15 of 18 counts in a lawsuit which had been filed by the state on the basis of a new anti- smoking law passed in 1994. The judge determined that any liabilities claimed by the states against the companies that pre-dated 1994 were not admissible.

Among the 15 counts dismissed were claims that the tobacco companies had committed fraud by suppressing facts about the hazards of smoking and lied to regulators trying to investigate the risks of smoking.

In regard to BAT - headed by the chief executive, Martin Broughton - and its subsidiary BATUS, Judge Cohen also ruled that they were both holding companies and that the state had failed to prove that either had transacted business on a regular basis in the state. The judge none the less accepted that any post-1994 claims of negligence and product liability against the companies could go forward.

The ruling was instantly hailed by the tobacco industry, which is straining to see cracks in the coalition ranged against it. In a statement, Philip Morris said it "provided the most significant test of the states' legal attempts to impose liability on the tobacco industry".

Some 16 states have begun proceedings against the tobacco industry in an effort to recover public funds expended on treating Medicaid patients for smoking-related diseases. In recent weeks, a raft of individual American cities have also joined the litigation bandwagon.

Equally daunting for the industry is the apparent determination of Mr Clinton to take up recommendations from the FDA that tobacco products should be treated as drugs and therefore subject to federal recommendation.

Last month, Mr Clinton approved an FDA plan aimed at curtailing illegal smoking among youths. The proposals, likely to become the subject of court challenges, would restrict advertising on billboards in areas where children congregate. Tobacco companies would also be banned from displaying billboards at sporting events while cigarette vendors would be required to demand photo identification from young people.