Philip Morris, Reynolds Settle With ABC : Tobacco: Firms end libel action over 1994 report that said they add nicotine to cigarettes.

Two of the world’s biggest cigarette makers said Monday that they have settled libel suits against ABC-TV for a 1994 broadcast alleging that the companies manipulated the amount of nicotine in cigarettes to keep smokers addicted.

The suits, filed by Philip Morris Cos. and R.J. Reynolds Tobacco Co., alleged that ABC’s newsmagazine show “Day One” falsely reported that the companies “spike” cigarettes with higher levels of nicotine.

“It is the policy of ABC News to make corrections where they are warranted,” ABC said in a statement, which was released by all three companies. Diane Sawyer, hosting ABC’s “World News Tonight,” also read the statement.

“We now agree that we [ABC] should not have reported that Philip Morris and Reynolds add significant amounts of nicotine from outside sources. That was a mistake that was not deliberate on the part of ABC but for which we accept responsibility and which requires correction.

“We apologize to our audience, Philip Morris and Reynolds.”

The statement also said ABC and the tobacco companies continue to disagree over the main focus of the “Day One” reports, which aired Feb. 28 and March 7, 1994. But it added that the companies have agreed to end the libel actions.

R.J. Reynolds said in its own statement that ABC will pay the company’s attorney fees and other litigation expenses but that the amount will not be made public.

The settlement comes just two weeks after President Clinton and the Food and Drug Administration took on the tobacco companies, proposing that nicotine be regulated as a drug.

The agency said that three decades of research show that tobacco companies have long believed that cigarettes are addictive and have strong appeal to minors.

The President instructed the FDA to propose rules to curtail the sale, distribution and advertising of cigarettes to minors. The regulations would ban vending machine sales and prohibit distribution of free samples.

The tobacco industry has sued to block the action.

“We’re pleased to accept the apology,” said Charles Blixt, R.J. Reynolds senior vice president and general counsel. He said the settlement with ABC was months in the making.

A hearing was canceled last Friday as negotiations continued, and sources said both sides were still hammering out terms late Monday afternoon.

Industry analysts said rumors of the settlement were among factors boosting Philip Morris’ stock, which closed up $1.375 at $73.625 in New York Stock Exchange trading. RJR was unchanged at $27.125.

Although sources said they had expected the network to settle the suits, ABC had been fighting the case as late as last month when it moved to have it dismissed.

Since the suits were filed, Capital Cities/ABC Inc., which owns ABC, has agreed to be purchased by Walt Disney Co. for $19 billion.

The case centered on the cigarette-making process. Most cigarettes are made with some reconstituted tobacco, a filler that includes stems and crushed leaves. In making the filler, companies take out the nicotine and later add it back.

The issue is whether the companies simply recombined the ingredients or whether they “spiked” cigarettes as suggested in the “Day One” report.

The companies maintain they do not add extra nicotine to cigarettes to addict smokers.

ABC said the main point of the broadcast was whether the companies used the cigarette-manufacturing process to control levels of nicotine to keep people smoking.

“There was a mistake; we corrected it. The principal thrust of the report, however, was not about [nicotine from] outside sources,” said Capital Cities/ABC spokeswoman Patricia Matson. “We continue to believe the broadcast speaks for itself.”

After the segments were aired, the FDA raised the prospect of regulation for the first time.