Tobacco shares tumble following £8.2bn damages ruling

Ben Martin
02 Jun 2015
Telegraph UK
More than £2.5bn was wiped off British American Tobacco and Imperial Tobacco amid fears of other legal claims
More than £2.5bn was wiped off the value of UK tobacco companies after three cigarette makers, including British American Tobacco, were ordered to pay Can$15.6bn (£8.2bn) in damages to Canadian smokers in two class action suits.
Shares in BAT slumped 2.4pc to £35.06 and Imperial Tobacco, which is not involved in the legal proceedings, lost 2.9pc to £32.10 amid investor concern the ruling in Quebec could spark other cases.
BAT’s Canadian subsidiary – Imperial Tobacco Canada – was ordered to pay Can$10.5bn, while Rothmans, Benson & Hedges was hit with a Can$3.1bn damages ruling, and JTI-MacDonald must pay Can$2bn. The class action lawsuits involve almost 1m smokers, who claim they were not warned about the health risks of cigarettes.
All three companies said they would contest the ruling, with BAT issuing a stock exchange announcement in which it said it believed there were “strong legal grounds” to appeal the judgment. The lawsuits were originally filed in 1998 and appealing Monday’s decision is likely to add years onto the process, analysts said.
“The wider implications of the legal battle are more significant than the billions of dollars in damages awarded to the plaintiffs in this particular instance,” said Laith Khalaf, an analyst at Hargreaves Lansdown. “If this genie gets out of the bottle, it will set a precedent for court cases across the globe against the tobacco industry.”
Analysts at Nomura said that while the parent companies of the firms involved are protected from the legal claims, the ruling nevertheless could have significant implications for the subsidiaries.
“If the full payment needs to be made, there is the possibility that it bankrupts all of the tobacco majors in the [Canadian] market, with the payments dwarfing the annual operating profit,” they said. “However, as we understand, all of these companies are separate – ring-fenced – legal entities, and therefore the claims would have no impact at the parent level.”