US. Shares in Philip Morris parent company Altria Group hit a fresh 52-week low on Monday after Philip Morris USA insisted it cannot post a US$12 billion bond needed to appeal an Illinois tobacco lawsuit.
Leading credit rating agency Moody’s downgraded the tobacco giant’s rating and Standard and Poor’s warned that Philip Morris could be forced into bankruptcy if the massive bond requirement is not reduced.
Altria’s stock fell nearly -7% to close at US$29.96, on heavy volume on the New York Stock Exchange. That broke through the shares’ previous 52-week low of US$31.55 (see also Moodie 100 Confidence Indicator). Altria bonds also were sent reeling.
An Illinois judge on Friday ordered Philip Morris to post the hefty bond while it appeals a US$10.1 billion judgment for misleading smokers into believing its light cigarettes – Marlboro Lights and Cambridge Lights – were less harmful than regular brands.
Standard and Poor’s (S&P) analysts reiterated in a conference call this week that Philip Morris “might have to consider bankruptcy as an option,” if the bond cannot be raised or reduced substantially. They also expressed concerns about the company’s liability in future lawsuits.
S&P warned it will lower the credit ratings of Altria and its subsidiaries to junk status unless Philip Morris can come up with “a viable and realistic plan to address the bonding issue.”
Altria Group also owns 80% of Kraft Foods (with important travel retail confectionery brands such as market-leading Toblerone, Milka and Cote d’Or). Last week Altria Group’s share price fell -8.3% and nearly -7.0% on Monday after concerns about the company’s legal troubles mounted. See also Philip Morris and Kraft Foods in the M21 Supplier Index.
Philip Morris is the dominant player in global travel retail cigarette sales with a market share of about 43% in 2002, equal to some US$750 million in retail sales at retail value. One out of every three cigarette cartons sold in duty free is believed to be from the Marlboro family. In the Philip Morris portfolio, Marlboro represents 85% of all travel retail cigarette sales with the remaining 15% being made up of brands such as Philip Morris, Parliament, Chesterfield, L&M, Virginia Slims, Muratti, Merit, Peter Jackson and Lark (in order of importance).
