Analysts: No Sweat on Tobacco Suit

Cite judge's caution on damages

NEW YORK -- A lawsuit against makers of light and low-tar cigarettes is less likely to morph into a large-scale, money draining ordeal for tobacco companies, two analysts said, according to an Associated Press report.

A federal district judge last Thursday delayed a decision on whether to grant class-action status to a lawsuit alleging tobacco companies fooled smokers into thinking light cigarettes are safer than regular cigarettes. The suit, which could include tens of millions of light cigarette smokers if it is given class-action status, could cost [image-nocss] tobacco companies $200 billion.

As reported in CSP Daily News, the class-action hearing was held Wednesday in a federal court in Brooklyn, N.Y.

Merrill Lynch analyst Christine Farkas said Judge Jack Weinstein made comments indicating concern or skepticism with some of the plaintiff's points. In the past, many of the judge's tobacco-related decisions have been overturned on appeal, and it is important to him to make sure this doesn't happen in this case, Farkas said. On balance, we think this hearing went about as well as could be expected for the tobacco defendants, she wrote.

The judge could take up to a few months to come to a decision on the issue, said Farkas.

Morgan Stanley analyst David J. Adelman doesn't expect a ruling until early 2007. Adelman in a client note said the hearing made him slightly less concerned about the possibility of the suit turning into a large-scale financial or legal risk. More important than the question of whether the suit will wind up designated class action is the question of whether the judge will allow the case to proceed, added Adelman.

And in her own Industry Note, Citigroup tobacco analyst Bonnie Herzog agreed, but still expressed a degree of caution: It appears that this case will most likely not be certified based on Weinstein's reactions towards the plaintiff's evidence surrounding damages; however, given the judge's record in certifying tobacco cases, we would not be completely surprised (despite the plaintiff's seemingly weak arguments) if he still certifies the class.

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