Tobacco companies take Quebec court ruling in stride
Investment analysts say the Quebec court ruling that three tobacco giants must pay out more than $ 15 billion in what is believed to be the biggest class- action lawsuit in Canada hasn’t knocked the wind out of one of the world’s most profitable industries just yet.
“The damages usually get written down to a much smaller amount. So if the judgment remains in place and this is not the end of the road for the legal process, then yes, it would be a significant negative,” Philip Gorham, an analyst at Morningstar Inc. in Amsterdam, said Tuesday, the day after the ruling.
“But I would expect to see that number come down. These lawsuits have been around for a long time and it’s nothing new.”
Quebec Superior Court Justice Brian Riordan’s decision was made public late Monday following years of testimony and another six months of deliberations.
The three firms will split the $ 15.6 billion according to responsibility set out by the court — 67 per cent will fall to Imperial Tobacco ($ 10.5 billion), 20 per cent to Rothmans, Benson & Hedges ($ 3.1 billion) and 13 per cent to JTI- Macdonald ($ 2 billion).
Two of the firms — JTI- Macdonald and Imperial Tobacco Group PLC — reacted immediately to Riordan’s ruling and said they will appeal the decision.
The plaintifs included just over one million Quebecers who argued the companies were liable because they knew they were putting out a harmful product and hid the health efects of tobacco.
On Tuesday, shares of Imperial Tobacco’s parent company, British American Tobacco PLC, fell 2.4 per cent in London. Japan Tobacco Inc., the parent of JTI- Macdonald, saw its stock slip 1.8 per cent in Tokyo.
Gorham says this relatively small drop indicates investors are confident that the final payout will probably come down later in the appeals process.
“Just as tobacco companies claimed in this case that people should have known that smoking causes cancer, investors in tobacco need to know and understand there are certain fat- tail risks involved in holding tobacco stocks,” he said.
All Canadian provinces have filed medical cost recovery lawsuits against tobacco companies for health- care costs stemming from smoking- related disease and are seeking about $ 120 billion collectively.
“It is fair to say that Canada is probably the global ‘ hotspot’ for tobacco litigation so it will be interesting to see how this and other cases there develop,” said James Bushnell, an analyst at Exane BNP Paribas in London, in an email.
In Canada, some major institutional investors hold shares in the tobacco sector.
The Caisse de depot et placement du Québec and BMO both hold shares in Japan Tobacco, according to Bloomberg data.
The Canada Pension Plan Investment Board and RBC hold shares in Altria Group Inc. and Philip Morris International Inc., two tobacco companies not involved in the Quebec lawsuit.