Investors Thursday pummeled shares of Philip Morris, raising anew a question that has plagued the tobacco industry for decades: Have fears of potential product liability finally prompted investors to end their love affair with tobacco companies?
Philip Morris lost about $4.6 billion of its market value in continued response to Wednesday's stunning announcement that a small rival, becoming the first tobacco company to do so, has agreed to settle a tobacco liability class-action lawsuit and cooperate with proposed federal limits on advertising designed to curb smoking by minors.
The dramatic decision by Brooke Group Ltd., which owns cigarette maker Liggett Group Inc., to crack the industry's seemingly impregnable solidarity in the face of mounting legal challenges clearly has investors edgy about the prospect that tobacco companies could be heading inexorably for their day of reckoning.
Philip Morris--Thursday's most actively traded issue on the New York Stock Exchange, with 15.45 million shares changing hands--tumbled $5.50 to close at $92.50. That followed a loss of $4.375 on Wednesday.
U.S. Tobacco shares fell $1 to close at $33.625, and RJR Nabisco Holdings Corp. declined $1.25 to close at $32.625. American Brands, which has tobacco holdings in Britain but not the United States, rose 12.5 cents to $43.875. Brooke Group's shares slipped 25 cents to close at $9.625.
Liggett, the smallest of the nation's five major cigarette companies, and lawyers representing millions of smokers agreed Wednesday to drop the company
from the huge Castano class-action suit in New Orleans in return for Liggett's funding of a national quit-smoking campaign.
So will Liggett's decision really be the straw that breaks the Camel's back? It depends whom you ask.
Greg Jackson, a devout Mormon and a portfolio manager for Yacktman Asset Management in Chicago, has bought about 200,000 shares of Philip Morris as the stock's price has wallowed this week, bringing the firm's overall holdings to about 700,000 shares.
"Morally, I think smoking's wrong, but people don't hire me for my religious views," he said. Rational investors, he added, are willing to ride out the bumps because "the value is still there."
Some market observers noted that Philip Morris is tough to resist as an investment because of its management's excellent handling of a diversification into beer and food products.
