FOR IMMEDIATE RELEASE - MONDAY, JANUARY 17, 2000
THE POTENTIAL LIABILITIES OF ROTHMANS, BENSON & HEDGES: WILL CANADA'S SECOND-LARGEST TOBACCO COMPANY BE SUED OVER SMUGGLING?
TORONTO - Is Rothmans, Benson & Hedges going to be the next Canadian tobacco company to be slapped with a massive smuggling lawsuit? That's the question Rothmans Inc. shareholders should be asking themselves as they gather for a special meeting in Toronto this morning, says the Non-Smokers' Rights Association.
Rothmans Inc. is a publicly traded holding company that owns 60% of Rothmans, Benson & Hedges (RBH), Canada's second-largest tobacco company. The other 40% belongs to U.S. tobacco giant Philip Morris.
To help shareholders evaluate their investment in Rothmans Inc., NSRA representatives will be attending this morning's special meeting of shareholders at 10 a.m. in Toronto to ask questions of Rothmans Inc. management. The organization is also releasing an analysis of what formerly secret tobacco industry documents reveal with respect to RBH and smuggling. This analysis is available on the NSRA's website, at www.nsra-adnf.ca/english/RBH .
U.S. court orders have forced Philip Morris to disclose millions of documents - including files that detail negotiations between RBH and Philip Morris with respect to a number of brands of Canadian cigarettes. In November 1992, Philip Morris reacquired the U.S. trademark rights to several RBH brands. Without a deal between the two companies, this would have made major RBH brands such as Rothmans, B&H, Mark 10 and Viscount unavailable south of the border - thus drastically reducing RBH's share of the Canadian black market for cigarettes.
In negotiations, RBH proposed a three-tiered price system for its shipments of Canadian cigarettes to the United States. In particular, the company proposed separate prices for U.S. duty-free accounts "with verifiable U.S. retail sales (airports, border shops, etc.)" versus "Other U.S. Duty Free."
"What exactly was RBH doing selling cigarettes to U.S. accounts that had no verifiable retail sales south of the border?" asks Francis Thompson, the NSRA policy analyst who compiled the report. "This type of account seems to have made up 90% of RBH's exports to the United States, the paper trail indicates."
"Given that there is virtually no market for Canadian cigarettes among non-Canadians, it seems highly unlikely these shipments were in transit to a third country," Thompson points out.
In January 1999, British-American Tobacco (the parent company of Canada's Imperial Tobacco) and Rothmans International announced plans for a merger of their multinational empires. This transaction would effectively give BAT control of 88% of the Canadian cigarette market - a potential near-monopoly that attracted the attention of the federal Competition Bureau.
BAT has therefore committed itself to selling off its majority stake in Rothmans Inc. by June 7, 2000. However, to date no buyers have been forthcoming. Indeed, since the BAT-Rothmans International merger was first announced a year ago, the value of Rothmans Inc. shares has dropped by more than 50% - including a $40 drop, to $100, last Friday.
Analysts originally suggested that Philip Morris, with its 40% share of RBH, would be a natural buyer, but it has so far given no indication it wants to deal with BAT on the issue. "There are all sorts of possible reasons," Thompson says. "But people should be made aware that if anybody outside of Rothmans knows the full extent of RBH's smuggling-related liability, it's the executives over at Philip Morris."
On December 21, the Canadian government announced a smuggling-related lawsuit against the former RJR-Macdonald (now JTI-Macdonald), related companies, and the Canadian Tobacco Manufacturers' Council, of which Rothmans, Benson & Hedges is a member. Government lawyers estimated damages at a minimum of $1 billion U.S., an amount that could be tripled under U.S. Racketeering-Influenced and Corrupt Organizations (RICO) legislation. The next day, BAT announced it would be disposing of its stake in Rothmans Inc. via a secondary offering, rather than continuing efforts to sell its stake to another firm.
"The tobacco companies successfully used smuggling to force a massive tax rollback in much of the country in 1994, thereby addicting many thousands of new customers to their product," says NSRA executive director Garfield Mahood. "It looks like it's payback time."
Both Mr. Mahood and Mr. Thompson will be in attendance at the Rothmans Inc. shareholders' meeting in Toronto. Mr. Thompson will be back in Ottawa by early evening.
For further information:
Francis Thompson, NSRA Ottawa office, (613) 230-4211
Garfield Mahood, NSRA Toronto office, (416) 928-2900, cell. (416) 451-4285