Philip Morris May Not Have to Post a $12-Billion Bond

Philip Morris may not have to post a $12-billion bond to appeal a $10.1-billion damage verdict, an Illinois judge said Tuesday.

The nation’s largest cigarette maker may have other options, including a guarantee from its parent, Altria Group Inc., Judge Nicholas Byron told a court hearing. “I want to see this company appeal,” he said. “I don’t want to put the company out of business.”

In a related ruling Tuesday, Cook County Circuit Judge James Henry in Chicago blocked Illinois from collecting the $3-billion punitive damage portion of Byron’s judgment for 10 days. The remaining $7 billion is compensation Byron awarded to consumers he said were duped into believing Philip Morris’ “light” cigarettes weren’t dangerous.

Philip Morris said it did not have $12 billion, and credit-rating companies say it may face bankruptcy if forced to put up the money. The company has received support from 37 states that were part of a $208-billion settlement with the tobacco industry in 1998. The states are concerned that Philip Morris won’t be able to pay the next installment on the settlement: $2.5 billion due April 15.

In all, the tobacco industry agreed to pay $246 billion through 2025 to the 50 states, much of it for public health programs. Philip Morris, which makes such brands as Marlboro Lights, owes about half the total.

Jeffrey Harris, an economics professor at the Massachusetts Institute of Technology who testified for Philip Morris customers, told Byron that the firm can raise prices to pay the bond.

“It’s reasonable to investigate whether Philip Morris could raise the price of Marlboros,” Harris said. He added that Marlboro is gaining market share among young smokers.

Altria shares rose 98 cents to $30 in New York Stock Exchange trading. Shares of the New York-based company have slipped about 14% since Byron ruled against it March 21.

Forcing Philip Morris to post the bond could be bankrupting because it’s “multiple times the net worth of the company,” said Philip Morris lawyer George Lombardi. “The bond has sent economic shockwaves throughout the country.”

Philip Morris USA accounted for 29% of Altria’s operating income, or $5.1 billion, last year. The tobacco company’s sales were $18.9 billion, or 23%, of Altria’s total.

Byron, who at one point said he may take testimony from witnesses this week before deciding the bond question, closed the courtroom to spectators and encouraged lawyers for Philip Morris and the consumers who sued the firm to seek a compromise.

The judge said he would not hold Altria responsible for any bond that Philip Morris must put up.

“I will respect the corporate status of Altria,” he said. “I will consider Philip Morris USA as its wholly owned subsidiary but as a separate corporation.” The hearing ended Tuesday without a resolution.

Legal experts said Byron was giving careful consideration to reversing himself on the size of the appeal bond.

“I wouldn’t rule out that the judge would overrule himself,” said William Schroeder, a law professor at Southern Illinois University.

Byron’s “got to figure out a way to solve this bond issue,” said Tim Drake, an analyst for Banc One Advisors Corp., which owns 8.43 million Altria shares in its $140 billion under management.