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THE TOBACCO SETTLEMENT

How Deal Will Affect Buyers, Sellers, Growers

June 21, 1997|From Associated Press

NEW YORK — The $370-billion tobacco settlement dramatically alters the tobacco business and the finances of those who buy, sell and grow tobacco. Here are some questions and answers about the possible impact of the tobacco settlement reached Friday:

Q: Who wins?

A: Attorneys general of 40 states and others who sued the industry will get a payout, the first in tobacco personal-injury litigation. Tobacco investors now own stock in companies that are no longer at risk of losing a disastrous court decision. Tobacco company executives who can tell their shareholders they have removed a huge threat to their wealth.

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Q: Who loses?

A: Stores that sell cigarettes. Tobacco farmers and tobacco-dependent communities. Plaintiffs who hoped to recoup major damage awards now have to settle for a piece of the industry's payment.

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Q: Would smokers pay more?

A: Yes. The deal requires the tobacco industry to pass on the costs. Most industry analysts say the price of a pack of cigarettes will go up by 50 to 60 cents, but some say it could go as high as 80 cents more. Proposed federal and state tax increases could eventually raise the average price of a pack from the current $1.85 to more than $3, according to the most pessimistic estimates.

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Q: How would the deal affect industry profits?

A: The settlement would cut industry profits from $8.4 billion to $6.7 billion next year, according to securities firm Sanford C. Bernstein. Industry leader Philip Morris could see 1998 profits drop from an estimated $4.7 billion to $3.8 billion and RJR Nabisco could see tobacco profits fall from a projected $1.5 billion to $1.1 billion.

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Q: What happens to pending lawsuits against cigarette companies if Congress approves the deal?

A: The deal would settle 40 state lawsuits that seek to recover Medicaid money spent treating sick smokers and 17 class-action lawsuits. Individual lawsuits already pending in court are not expected to be affected, unless those plaintiffs chose to join the settlement.

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Q: What would happen to tobacco consumption?

A: Researchers say the number of cigarettes sold would decline by more than 10% as price hikes cause smokers to cut back.

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Q: How would the deal affect retailers?

A: Retailers would likely see sales drop as smokers buy fewer cigarettes with the increase in prices going to the industry's liability fund. Convenience stores, which sell one out of every two cigarettes, could see their $17.3 billion in annual cigarette sales drop.

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