Philip Morris Agrees to Pay $6.5 Billion

Philip Morris, which has been mum on what it would pay under the global tobacco settlement worked out with the states, said it will pay $6.5 billion of the initial $10 billion due in the $368.5-billion accord.

The amount, disclosed in a Securities and Exchange Commission filing this week, is about what analysts expected. The company also detailed its later annual payments.

In a separate development Friday, Federal Trade Commission Chairman Robert Pitofsky said the proposed tobacco agreement, which is under review by Congress and the White House, may permit price-fixing by cigarette companies unless it is changed.

Pitofsky told a small group of reporters in Washington that the tobacco agreement includes an antitrust exemption.

“The exemption is written in such a way that I believe--maybe they didn’t intend it this way--it could cover price-fixing,” Pitofsky said.

“Four companies could get together after this agreement is implemented and agree on how much this agreement is costing them--50 cents a pack, 75 cents a pack. And under that provision, I think they could agree on how much to add to a pack of cigarettes.”

Pitofsky said although some tobacco critics believe that prices should increase in order to discourage smoking, any revenues derived should be taxed rather than go to the tobacco companies.

“If your goal is to raise prices, let’s do it through a tax where the money goes to the Treasury, as opposed to price-fixing by the four companies where the money goes to the four companies,” Pitofsky said.

Philip Morris had earlier warned investors the settlement could have a material effect on its sales, cash flow and operating income--as well as domestic and international regulation.

Other tobacco companies have outlined their initial payments of the settlement, indicating that industry leader Philip Morris would pick up the lion’s share of the agreement’s costs.

Shares in New York-based Philip Morris fell 6 cents to close at $43.31 on the New York Stock Exchange.

Under the industry’s agreement with attorneys for states and smokers, tobacco companies will make an upfront payment totaling $10 billion. Each company’s payout will be determined by the market value of its shares.