Settlement Spurs Record Cigarette Price Hike

Philip Morris Cos., the nation’s biggest tobacco company, raised wholesale prices of its Marlboro and other cigarette brands by a record 45 cents a pack as the industry sealed its mammoth legal settlement with the states.

No. 2 R.J. Reynolds Tobacco Co., a unit of RJR Nabisco Holdings Corp., joined the move, and others were expected to follow suit in what one analyst called the biggest U.S. cigarette price hike ever. It could push the average retail price of cigarettes to $2.45 a pack and the price of premium brands such as Marlboro even higher.

The nation’s third-largest cigarette company, Brown & Williamson Tobacco Co., a unit of Britain’s British American Tobacco, also matched the increase, and No. 4 Lorillard Inc., a unit of Loews Corp., was expected to do so, a leading Wall Street analyst said.

A Brown & Williamson spokesman declined to either confirm or deny the price increase, and a spokesman for Lorillard was not immediately available.

Analysts had widely predicted a price increase of 35 cents to 40 cents a pack to pay for the tobacco settlement resolving states’ claims for reimbursement for providing health care to sick smokers.

David Adelman, tobacco analyst with Morgan Stanley, Dean Witter, said smokers may be stuck with an even bigger increase of about 50 cents a pack as distributors and retailers add a nickel to the wholesale price hike.

He estimated that the national average price of cigarettes would rise to $2.45 a pack from the current $1.95, an increase of more than 25%.

Philip Morris offered no explanation for its price increase. But Adelman said the main reason was “to fund the settlement payment. That is a significant increase in the cost of doing business and they have to pay for it.”

The nation’s five biggest tobacco companies signed the settlement Monday with 46 states, the District of Columbia and five U.S. territories, under which they would pay $206 billion over 25 years to settle unresolved state claims for Medicaid reimbursements.

New York-based Philip Morris rose $2.50 to close at $58.25 on the New York Stock Exchange. Shares of RJR rose $1.19 to close at $31.63, while Loews rose $3.06 to close at $104.38, also on the NYSE.

British American Tobacco’s American depositary receipts fell 19 cents to close at $18.06 on the American Stock Exchange.