The long-running dispute between cigarette maker Philip Morris International Inc. (PM) and 19 U.S. states has come to an end. Other cigarette makers also reached an agreement and these companies, including Philip Morris, have agreed to pay $4 billion to the states under the 1998 anti smoking agreement.
The dispute was related to Non-Participating Manufacturer (NPM) adjustment provisions of the Master Settlement Agreement (MSA). Under this agreement, inked between 46 states and major tobacco players including Philip Morris, Reynolds American Inc. (RAI) and Lorillard Inc. (LO), the tobacco makers had agreed to pay the states for their tobacco-related health-care costs and also abide by the restrictions on advertising, marketing and selling cigarettes in these states.
The dispute arose over the amount of payment that these tobacco companies had to pay to the state governments, since they lost market share in these states to other companies who did not enter into the agreement.
The 19 states that reached the agreement are Alabama, Arizona, Arkansas, California, Georgia, Kansas, Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Tennessee, Virginia, West Virginia, Wyoming, Puerto Rico and the District of Columbia.
The states have so far received $85 billion. According to the settlement, the 19 states will get their share of about $4 billion that was paid into a disputed payments account. In return, the tobacco giants will receive credits against future payments to the states.
Philip Morris will get 28% of credit to the companies that were original participants in the settlement. It is estimated to total approximately $450.0 million, but it may vary depending on various factors. However, the company said that it will continue negotiations with states that were not part of the new agreement.
Currently, we have a Neutral recommendation on the stock. Philip Morris holds a Zacks #3 Rank (short term Hold rating). Philip Morris reported adjusted third quarter 2012 earnings per share of $1.45, surpassing the year-ago quarter’s earnings by 5.8%, excluding currency. Earnings beat the Zacks Consensus Estimate of $1.39.
More From Zacks.com