Summary: Contrary to what tobacco companies had hoped for, U.S. District Judge Jack B. Weinstein in Brooklyn, N.Y. made a pre-trial ruling yesterday allowing as many as 50 million light cigarette smokers to claim class-action status in a lawsuit against the country's major tobacco companies. Also included in this ruling in a 2004 lawsuit was an allegation that Philip Morris USA [now Altria] (MO), Reynolds American Inc.'s (RAI) R.J. Reynolds Tobacco Co., and Loews Corp.'s (LTR) Lorillard Tobacco unit lied to consumers by advertising "light" cigarettes as being healthier than the regular high-tar version. The plaintiffs are seeking between $120 billion and $200 billion in damages, the approximate amount that the tobacco companies gained through their alleged deception. As a result, Altria announced it would delay its planned breakup and spinoff of its 88%-owned Kraft division. Altria's stock went down $5.26, or 6.4%, to $77.06. Reynolds shares fell $2.27, or 3.7%, to $59.75. Tobacco companies are appealing the ruing in the Second U.S. Circuit Court of Appeals in New York.
Related links: Full WSJ article • Altria's Opportunity to Unlock Shareholder Value • Yahoo News: R.J. Reynolds Tobacco Company to Appeal, Ask for Stay in "Lights" Case • Background: Altria Stock Jumps on Judge's Ruling Against Smokers
Potentially impacted stocks and ETFs: Stocks: British American Tobacco (BTI), Imperial Tobacco Group (ITY), Gallaher Group Plc (GLH), Vector Group Ltd. (VGR) • ETFs: iShares Dow Jones US Consumer Goods ETF (IYK), Vanguard Consumer Staples ETF (VDC), and Consumer Staples Select Sector SPDR (XLP) all have tobacco producers as a major holding.
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