Tobacco giantReynolds American (
) stumbled Monday on news that a Florida jury awarded the widow
of a long-time smoker who died of lung cancer a $23.6 billion
The verdict, handed down last Friday, hit most tobacco stocks.
The Tobacco industry group is ranked No. 35 out of 197. That's up
from No. 49 just six weeks ago.
Most observers don't expect the award to hold up, anticipating
it will be dramatically reduced by the trial judge or an
appellate court. Legal experts said the award is well outside the
bounds for punitive damage.
The stock recovered much of its early-morning loss. But
Reynolds shareholders have other worries: The market has not
reacted well to last week's news of a planned merger
After months of speculation over possible mergers among Big
Tobacco, Reynolds and Lorillard announced July 15 a $27.4 billion
merger agreement that included Reynolds assuming Lorillard's
Stocks in both companies plunged 7% that day, reversing prior
uptrends and sending the stocks down through their 50-day moving
averages in heavy volume. The action since then has been less
than encouraging, with Reynolds bearing most of the brunt. While
Lorillard has stabilized the last four days, Reynolds has sunk
Most of the negative chatter centers on whether the merged
companies can get antitrust clearance. Reynolds is the No. 2
tobacco company in the U.S. and Lorillard is No. 3, measured by
Tobacco consumption has been on the decline for years and
suffered a 4% decline last year.
They are trying to make up for lost sales through the
development of e-cigarettes that use battery power to release
smoke-like vapor. They are supposed to avoid the negative health
effects, but they, too, are being scrutinized by regulators.