The nation’s top cigarette makers said Tuesday they have made about $6 billion in annual payments as part of a longstanding settlement in which some companies are paying states for smoking related health care costs.
Under the 1998 Master Settlement Agreement, participating tobacco companies agreed to make billions in payments to 46 states, Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, the U.S. commonwealth of the Northern Mariana Islands and the District of Columbia over more than two decades. States first received full payments under the settlement in 1999. It was estimated that the companies would pay up to $246 billion over 25 years. Future annual payments also will continue in perpetuity.
The billions in annual payments come amid criticism from public health officials that states are using only a small amount of the money to fund tobacco prevention programs, making it harder to reduce death and disease caused by tobacco use. The settlement did not mandate that the money was to be used for anti tobacco and stop smoking programs.
While states on average have never spent as much the U.S. Centers for Disease Control and Prevention would like, the total has declined dramatically in recent years as states have grappled with budget deficits. Many also have raised tobacco taxes in order to increase revenue and supplement funds provided by the tobacco industry.
Philip Morris USA, the nation’s largest cigarette maker owned by Altria Group Inc., said Tuesday that it made its payment of about $3.3 billion as part of the settlement.
The Richmond based maker of Marlboro, Virginia Slims and Parliament cigarettes said the payment includes an undisclosed amount that it says it doesn’t owe that was deposited into a separate account. The company will try to get it back through negotiations or arbitration, as allowed under the settlement.
No. 2 R.J. Reynolds Tobacco Co., owned by Reynolds American Inc., based in Winston Salem, N.C., paid $1.77 billion this year. The maker of Camel, Pall Mall, Kool and other brands deposited a portion it disputes $421 million into a separate account.
No. 3 Lorillard Inc., Greensboro, N.C. based maker of Newport, True and Maverick brand cigarettes, paid $1.1 billion this year, including $93 million it disputes.
Philip Morris USA said it has paid more than $66 billion under the settlement and previous agreements since 1997. RJR has paid more than $33 billion under the agreements, and Lorillard has paid more than $16 billion.
Michael Felberbaum can be reached at
Reynolds american former ceo susan cameron to return to post – wall street journal – wsj.com
Electronic cigarettes: regulatingcould have unintended consequences
Reynolds American Inc. said on Wednesday that Chief Executive Daniel Delen is retiring after three years at the helm and will be replaced by Susan Cameron, the tobacco company’s former top executive.
The sudden handover, effective May 1, was an unexpected development at the second largest U.S. tobacco company by revenue, and whose cigarette brands include Camel and Pall Mall.
That could fan speculation that more changes are in store at Winston Salem, N.C. based Reynolds, which is trying to navigate a difficult time in the tobacco industry as more Americans quit smoking and regulatory pressures grow.
Maura Payne, a Reynolds spokeswoman, said the decision to retire was made by Mr. Delen, 48 years old, to “pursue his own interests and passions.” Mr. Delen will serve as a consultant to Reynolds for two years.
Mr. Delen became chief executive in March 2011, replacing Ms. Cameron, who had served as president and CEO and was a board member from 2004 to 2011. Ms. Cameron, 55, rejoined Reynolds’s board of directors last December.
Reynolds has seen its share of the cigarette market sag in recent years, to 27.4% in 2013 from 30.7% in 2005, according to Citi Research. Although Camel and Pall Mall have gained share, most of the company’s other cigarette brands have struggled. U.S. cigarette volumes industrywide have been declining 3% to 4% annually in recent years.
Reynolds has been trying to reduce its reliance on cigarettes by aggressively diversifying into other tobacco products. In 2006, under Ms. Cameron, the company acquired Conwood Co., the maker of Grizzly moist snuff. Under Mr. Delen, the company recently launched an electronic cigarette, Vuse, that it plans to roll out nationally this year.
U.K. based British American Tobacco PLC owns a 42% stake in Reynolds. A 10 year standstill agreement between the two companies expires at the end of July, after which British American can buy Reynolds shares without first approaching the Reynolds board. That has stoked speculation among some analysts and investors that British American could try to increase its stake in Reynolds.
There has also been periodic industry speculation that Reynolds or British American could try to acquire Lorillard Inc., the maker of Newport cigarettes and the third largest U.S. tobacco company by revenue. A combined Reynolds and Lorillard would be nearly equal in size to Altria Group Inc., which sells Marlboro cigarettes and controls roughly half the U.S. tobacco market.
In a research note on Wednesday, Wells Fargo analyst Bonnie Herzog wrote that Mr. Delen’s departure “could increase the chances for and signals a potential strategic partnership” with British American. Wells Fargo also continues “to believe the chances are great” that Reynolds could acquire Lorillard, Ms. Herzog added.
But other industry analysts have played down the prospect of British American increasing its stake in Reynolds, noting British American could have approached the Reynolds board at any time during the standstill if it wanted to buy out the company.
Many also doubt Reynolds or British American would try to acquire Lorillard anytime soon because of regulatory uncertainty. The Food and Drug Administration is weighing whether to clamp restrictions on menthol cigarettes after banning other flavors in 2009, and plans to propose regulations for e cigarettes shortly. Lorillard is the leading menthol player through its Newport cigarettes and owns blu, the top selling e cigarette.
Reynolds is scheduled to report its first quarter earnings on April 23.
Mr. Delen is a 25 year industry veteran and headed the company’s cigarette unit before ascending to the top spot. Analysts have generally given him good marks as CEO.
Industry observers were also surprised in 2011 when Ms. Cameron, the first woman to run a major tobacco company, announced she was retiring at the relatively young age of 51. A company spokeswoman at that time said that Ms. Cameron was retiring because she was nearing 30 years in the industry.
In a company statement on Wednesday, nonexecutive board chairman Thomas Wajnert said Ms. Cameron’s three decades of experience “make her an exemplary choice” to head the company again. Under Mr. Delen’s leadership, management has demonstrated that “its strategic plans to transform tobacco are sound, and their ability to operationally deliver against those strategies is excellent,” he added.
In an accompanying statement, Ms. Cameron said she was excited to return to the CEO role and that she is “looking forward to the opportunity to not just advance, but accelerate” efforts to transform the tobacco industry.
In the same company news release, Mr. Delen said that he is looking forward to “the opportunity to pursue new interests” and that he is confident Reynolds “will continue to reach new levels of success.”
The company declined to make Ms. Cameron or Mr. Delen available for interviews on Wednesday.
John Kell contributed to this article.
Write to Mike Esterl at