PMI - Rothman creating legal and public relations headaches..

August 1, 2008 - One of the primary reasons for spinning off of Philip Morris International from the Altria Group was to free the tobacco giant's international operations of legal and public-relations headaches in the U.S. that have hindered its growth. The focus was to be on developing countries where cigarette consumption continues to increase. On this date (March 28, 2008) the beast will be loose - Philip Morris International (PMI)...

Instead PMI has just announced it will buy Toronto based Rothmans Inc. The deal gives Philip Morris the remaining 60% stake in Rothmans Benson & Hedges Inc (RBH - the operating subsidiary of Rothmans Inc), Canada's second largest cigarette maker. Philip Morris already owned the other 40%.

As a result of this purchase is PMI creating more legal and public relations headaches for themselves??

Based on information provided by Citigroup analyst Adam Spielman. RBH is facing extensive litigation in British Columbia.massive C$10 billion lawsuit brought by British Columbia against the tobacco industry. The province is suing for state-sponsored health-care costs allegedly racked up because of the effects of tobacco products. While Philip Morris International already has some exposure to the costs of that litigation–because, after all, it owns 40% of RBH–with the acquisition it will be taking on all of the risk. Philip Morris doesn’t believe the litigation poses much of a threat. Citigroup’s Spielman disagrees.

RBH, in fact, just settled a smuggling case. The company admitted liability from selling cigarettes duty-free into the U.S. from 1989 to 1994, only to have third parties smuggle the shipments back into Canada. RBH paid a fine of 100 million Canadian dollars and could pay an additional C$450 million over the next 10 years, Spielman said. More: Smuggling Case.

Spielman points out that Canada has a more deeply seated opposition to the tobacco industry than does the U.S., and a more aggressive consumer information movement. A sampling of Canadiab news briefs: Tighter restrictions on all tobacco advertising..; Canada: a bill introduced to snuff out drive to recruit young smokers..; Alberta tobacco reduction reduction strategy is working..;Tobacco Display Ban Deadline of May 31, 2008 Looms in Ontario and Quebec.. and New Brunswick to ban smoking in cars with children or youth present...

Reference: Is Philip Morris International Walking Back Into More Tobacco Litigation?Posted by Heidi N. Moore, 8/1/2008.