Philip Morris Revives Stock Buyback Plan

Tobacco giant Philip Morris Cos. on Wednesday dusted off a massive stock buyback program that sat on the shelf for 19 months as it struggled to settle the smoking-related health claims U.S. states had lodged against tobacco companies.

The nation’s top cigarette maker, producer of best-selling Marlboro as well as such food and beverage labels as Kraft foods and Miller beer, said it plans to resume share repurchases under a three-year, $8-billion plan originally authorized in February 1997.

The original buyback was mothballed after just two months in April 1997 when the company determined the litigation outcome was too uncertain to continue with the repurchases. At that time, Philip Morris had bought back shares worth about $50 million, leaving about $7.95 billion to be spent.

Wednesday’s announcement, widely expected on Wall Street, came two days after Philip Morris and its top U.S. competitors signed a $206-billion settlement with 46 states that had sued to recover the Medicaid costs of treating sick smokers. The companies previously had settled with four other states for $36 billion.

Philip Morris also said Wednesday that it would take a fourth-quarter pretax charge of $1.97 billion for the settlement.

UST Inc., the world’s largest maker of smokeless tobacco such as Skoal, also said Wednesday it would purchase as many as 20 million of its shares, resuming a buyback program suspended in June 1997.

Philip Morris in particular can take advantage of the removal of the industry’s biggest legal threat. It will have $5 billion in free cash flow next year--even after dividends and the buyback--to build up its fast-growing cigarette business overseas, analysts said.

Analysts said they expect the company to repurchase about $3.5 billion of stock in the first 12 months of the authorization.

Philip Morris’ stock rose to a new 52-week high of $59.38 on the news, before ending unchanged at $58.13 on the New York Stock Exchange.