Tobacco.org

• Executives revealed how cigarettes got into Canada 

The investigation into Canada's three major tobacco companies for aiding and abetting smuggling in the late 1980s and early 1990s began eight years ago, after The Gazette ran a series of articles alleging the companies were the main black market suppliers.

Central to The Gazette stories were a tobacco smuggler, who has since committed suicide, and two former tobacco sales executives who oversaw a scheme to funnel billions of Canadian brand cigarettes to the black market.

Les Thompson, an RJR Macdonald sales executive, described in interviews in hotel rooms in Ontario and Quebec how RJR Macdonald (now called JTI-Macdonald) established separate offices and companies in Toronto and the United States to oversee the funnelling of its brands, like Export A, to smugglers. . . .

Another key witness is former RJR Macdonald vice-president Stan Smith, who was Thompson's boss. Smith pleaded guilty in Ontario in 2006 and was sentenced to eight months of house arrest. He had been co-operating with police since 2000. . . .

The articles also focused on the role played by Imperial Tobacco and Rothmans. Both companies sent huge shipments of Canadian brand cigarettes into the U.S. under the pretext they were supplying the duty-free market. In fact, the cigarettes were simply sold back into Canada. . . .

Smugglers told The Gazette that company sales representatives regularly showed up at the smuggling spots and warehouses near Cornwall and Buffalo, N.Y., to take inventory.

After The Gazette articles, in 1998 and 2000, Imperial and Rothmans both denied any role in the smuggling.

Jump to full article »

Philip Morris says excise policy makes Bulgartabac a tough sell 

No multinational will be lining up to take tobacco monopoly Bulgartabac off the hands of the Bulgarian Government, given the current excise policy that encourages the production of cheap cigarettes, Peter Imre, head of corporate affairs at tobacco heavyweight Philip Morris, said on July 31 2008.

The company executive declined to say if Philip Morris had any concrete plans regarding the Bulgartabac sell-off. He said that he had not seen a ready strategy for the privatisation of the company.

Jump to full article »

PMI set to control third of Canada's market 

Consolidation in the global tobacco industry continued apace yesterday after Philip Morris International, the world's biggest listed tobacco company, agreed to buy Canada's Rothmans for C$2bn ($1.95bn) in cash.

The C$30-a-share offer, which is being recommended by Rothmans' board, represents a 17 per cent premium to the company's 20-day average trading price to July 30.

The deal, if successful, would give PMI control of a third of Canada's cigarette market, including the leading share of the country's fast-growing discount cigarette category.

The acquisition would be a first for PMI, which was formed after Altria spun out its overseas operations in March.

Jump to full article »

Rothmans to be inhaled by Philip Morris in $2-billion deal: $30 per share 

Rothmans Inc. (TSX:ROC) is set to be taken over by Philip Morris International Inc. in a transaction that values Canada's last publicly traded cigarette company at $2 billion.

Rothmans said Thursday the offer of $30 per share in cash has been endorsed by the board of directors of the Toronto-headquartered company, whose origins date back to 1899.

The announcement followed immediately on the resolution of smuggling charges against Rothmans, Benson & Hedges Inc., the Canadian operating company which is owned 60 per cent by Rothmans and 40 per cent by Philip Morris.

Jump to full article »

Province wins in tobacco lawsuit 

B.C. expects to receive an estimated $46.2 million after Canada's two largest tobacco manufacturers agreed to pay fines and penalties totalling more than $1.1 billion in an unprecedented settlement of criminal and civil cases.

B.C. Minister of Healthy Living and Sport Mary Polak said B.C.'s possible share is an early estimate and the final details need to be confirmed.

Jump to full article »

• EDITORIAL: Penalties-lite for errant tobacco companies  

Tobacco is a lucrative business, not only for the big cigarette companies and their upstart competitors, but also for the governments that tax the product. All these players do what they can to protect and increase their revenue stream. The difference is that the government gets to make the rules.

And so two of this country's three big tobacco firms, Imperial Tobacco Canada and Rothmans Benson Hedges Inc., have now filed guilty pleas and agreed to pay some $300 million in fines under the Excise Act, plus another $815 million in civil penalties to the federal, Quebec, and Ontario governments.

No penalties for individual executives of the companies were announced. And while the dollar figure was touted as the biggest in Canadian history, the civil penalties will be spread over 15 years. . . .

This story dates to the late 1980s, when governments increased their "sin tax" on cigarettes. Soon men with bulging hockey bags became regulars in many bars and other lightly-policed places across Canada. They were peddling cigarettes that had been exported from Canada, legally and tax-free, and then smuggled back into this country, many of them through the border-straddling Akwesasne Mohawk reserve near Cornwall, Ont.

Yesterday's guilty pleas confirm the open secret that the companies knew exactly what was going on, and were complicit. A 1999 investigation by The Gazette's William Marsden revealed . . .

Strikingly, and infuriatingly, the companies seemed to see yesterday's settlement as largely a way to protect market share. . . .

It would be an oversimplification to depict anyone in this story as being on the side of the angels. The major companies, the newcomers and governments are all battling over the profits from a dangerous product that kills thousands of Canadians a year. . . .

But until the last smokers give it up, or die, and until the last young person tempted to light up decides against it, tobacco will remain a necessary evil. Regulating and taxing the stuff, therefore, is better than the alternative. But it's a nasty business

Jump to full article »

It would be an oversimplification to depict anyone in this story as being on the side of the angels. The major companies, the newcomers and governments are all battling over the profits from a dangerous product that kills thousands of Canadians a year. . . . Regulating and taxing the stuff . . . is better than the alternative. But it's a nasty business.
Montreal Gazette editorial on Canada's smuggling settlement.

Philip Morris offers $2B for Canada's Rothmans 

As Philip Morris International Inc. made a friendly $2-billion takeover offer for Canadian cigarette maker Rothmans Inc. yesterday, some investors quickly started betting the U. S. tobacco titan will have to cough up more money to clinch a deal.

Soon after the deal was announced, Rothmans' stock price shot above the $30-a-share, all-cash offer -- a sign that at least some investors expect a higher price.

Fuelling that notion is the fact that the Canadian cigarette maker's largest shareholder is Jarislowsky Fraser Ltd., a pension fund well known for pushing for sweeter offers in takeover situations involving companies in which it has invested.

It has a roughly 14% stake in Rothmans, the No. 2 cigarette maker in Canada. . . .

The $30 a share bid is a roughly 16% premium to where Rothmans' shares were trading before the company yesterday unveiled the takeover offer and a long-awaited settlement with regulators over cigarette smuggling charges.

But investors who stand to lose Rothmans' generous dividend may seek more money, industry observers said.

Jump to full article »

• RCMP Closes Book on Historic Tobacco Investigations 

The Royal Canadian Mounted Police (RCMP) announced it has concluded a long-running file after two of Canada's largest tobacco companies entered guilty pleas this morning in response to indictable offences under Section 240(1)(a) of the Excise Act.

The guilty pleas, from Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH), are the culmination of more than eight years of investigative work by RCMP Customs and Excise sections in Ontario and Québec. As part of agreed statements of fact, the two companies admitted to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations." . . .

The material time of the charges involved illegal activity between the years of 1989-1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border. From there, it was distributed to smugglers or black market distributors who brought it back into Canada for further illegal distribution.

Jump to full article »

As part of agreed statements of fact, the two companies admitted to 'aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.'
RCMP, on the guilty pleas of Imperial Tobacco Canada and Rothmans Benson & Hedges.

Imperial Tobacco Canada, federal government and provinces reach resolution on contraband tobacco investigation 

"We are pleased to have resolved this issue," said Benjamin Kemball, president and CEO of Imperial Tobacco Canada. "Today's events give our business the stability it needs to move forward to address, with clarity and focus, the issues, opportunities and challenges it faces today and will face in the future." The Company believes that this outcome is in the best business interests of Imperial Tobacco Canada as it provides closure to this issue that dates back many years, as well as providing a framework to work with the authorities on current and future illicit trade issues. Imperial Tobacco Canada paid a one-time $200 million fine following the plea. . . .

In addition to the fine set out above ($200 million), and in order, amongst other things, to assist governments in their ongoing future efforts against illicit trade, Imperial Tobacco Canada has agreed to a civil agreement (the Comprehensive Agreement), requiring a payment of $50 million in 2008

Jump to full article »

We are pleased to have resolved this issue. Today's events give our business the stability it needs to move forward to address, with clarity and focus, the issues, opportunities and challenges it faces today and will face in the future.
Benjamin Kemball, president and CEO of Imperial Tobacco Canada, on its settlement of smuggling charges.

EDITORIAL: Justice in tobacco case? 

"There's no winners in this because the industry has addicted a whole bunch of young people who then became lifetime annuities for these companies," Mahood said.

But compromises evidently were made along the way to secure the guilty pleas. National Revenue Minister Gordon O'Connor said yesterday that governments and prosecutors agreed "this is the best settlement they could get."

That may be. But given the magnitude of the offence – and the public health effects of the resulting influx of cheap cigarettes – Mahood makes a good point.

Jump to full article »

• Tobacco firms cough up 

Imperial Tobacco Canada and Rothmans Inc., Canada's two largest tobacco manufacturers, have pleaded guilty to aiding and abetting the smuggling of cigarettes in the 1980s and 1990s and agreed to pay fines and penalties totalling more than $1.1 billion in an unprecedented settlement of criminal and civil cases.

The amount represents the "largest criminal fines and civil settlements in Canadian history," federal Revenue Minister Gordon O'Connor said at a news conference in Lévis yesterday. The settlement ensures the companies do not benefit financially from the smuggling, he added.

"I believe we are sending some strong and clear messages. Firstly, that such activity will not be tolerated. And secondly, that no company is above the law."

The settlements "close a significant chapter in contraband tobacco history," RCMP Assistant Commissioner Mike Cabana said. . . .

In addition to the fines, Imperial and Rothmans will each pay $50 million to establish a new government Contraband Tobacco Enforcement Strategy. The payments are due by Dec. 15.

To settle civil liability, Imperial is to pay the federal government and the provinces a percentage of its annual net sales revenue over the next 15 years, to a maximum of $350 million. Rothmans is to pay $200 million over the next 10 years, at a rate of $20 million per year. The first payment is to be made on Dec. 31, 2009. . . .

Just as the tobacco companies lied for years about the deadly health effects of smoking, Damphousse noted, they also lied originally about their involvement in smuggling.

"They have made lying a regular corporate practice," he said.

Cheap contraband cigarettes helped increased smoking rates among young people, damaging the health of thousands of Canadians, Damphousse added.

It was regrettable the RCMP did not charge any of the company executives, he said. . . .

Rothmans said the settlement opened the door to the sale of the company to Philip Morris International Inc. for $2 billion. The deal was contingent on the company settling its criminal and civil cases. . . .

If found guilty, JTI-Macdonald could face extensive forfeiture to the Crown equivalent to the amount of the fraud.

But getting money out of the tobacco firm could be difficult. The company filed for bankruptcy protection in 2004 after Quebec assessed it for $1.36 billion in unpaid taxes dating from the early 1990s.

Jump to full article »

Philip Morris International to buy Canada's Rothmans 

Philip Morris International said Thursday it has struck a friendly matchup with Canadian tobacco company Rothmans Inc. in a two billion Canadian dollar (1.9 billion) takeover deal.

PMI, the global cigarette maker and distributor of leading brand Marlboro, already owns a 40 percent stake in Rothmans, Benson & Hedges (RBH).

Rothmans Inc.'s sole holding is its 60 percent interest in RBH, whose brands include Rothmans, Benson & Hedges, Craven A and Belmont.

Jump to full article »

BAT posts 16 percent growth in profits driven by global brands UPDATE  

British American Tobacco Plc., maker of Kent and Pall Mall cigarettes, posted a 16 percent increase in profits from operations to 1.724 billion pounds in the first half to June 30 from 1.492 billion a year earlier, as favourable currency movements, a better product mix and improved pricing conditions drove growth.

Sales for the half were 5.457 billion pounds, up 15 percent from last year's 4.725 billion pounds. Adjusted earnings per share were 62.02 pence, compared with 53.51 pence, or 16 percent up on last year. The company will pay a dividend of 21.1 pence, up from 18.6 pence.

The company noted a decline in Latin America,

Jump to full article »

Rothmans dividend machine snuffed out 

One of the great Canadian dividend plays is being snuffed out, as cash-spinning cigarette maker Rothmans accepts a $2-billion takeover bid from Philip Morris International.

Recall the famous line from Warren Buffett: "I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty."

To that line of reasoning, add the fact that the folks at Rothmans paid out an incredibly dependable 5 per cent dividend, and added in the occasional chunky special dividend when the coffers started to overflow.

For income-addicted investors who could get past Rothmans' line of business, this stock was a core holding. The cigarette company becomes even more attractive as income trusts head for extinction.

Philip Morris, 40-per-cent partner in the Canadian company's Rothmans Benson & Hedges operating subsidiary, is obviously attracted to that same cash flow, hence the friendly takeover.

Jump to full article »

Altria profit edges estimates, cigarette volume down 

Altria Group Inc posted a second-quarter profit on Thursday that slightly beat Wall Street estimates, helped by higher prices, but the number of cigarettes shipped by its Philip Morris USA unit fell more than some analysts expected.

The pace of the shipment decline also accelerated from the first quarter, the opposite of what rival Reynolds American Inc reported on Wednesday, and Altria's stock lost more than 5 percent.

"Price increases accelerated the volume decline seen in the first quarter," Gregg Warren, an analyst at Morningstar said.

Altria shares also may have been pressured because the U.S. House of Representatives passed a bill that would give the U.S. Food and Drug Administration broad authority to regulate cigarettes and other forms of tobacco, Warren said.

Jump to full article »