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Philip Morris Retaliates Oz Ruling - Analyst Blog
11/22/2011 9:00:00 AM
Philip Morris International Inc. ( PM ) is once again at conflict with the Aussie government, as the tobacco giant launched a multi-billion-dollar legal action against the latter's ruling of plain packaging of cigarettes.
The latest ruling by the Federal Government entails cigarette manufacturers to sell their products in plain packages with warning labels occupying at least three fourth of the front side, as against the current norm of allocating 30% of the front space. Supposedly, the law is to take effect in December 2012.
Originally, the government wanted the new packets to be introduced from July 2012. The move, however failed to pass through the upper house of parliament, and the government now plans to enact the measures on a staggered basis.
Meanwhile, health minister Nicola Roxon is encouraging other countries to follow Australia's push for plain-packaged tobacco. Roxon will also hail the country's efforts at a major United Nations summit on chronic diseases next week.
In 2005, The World Health Organization had pleaded the countries to consider the plain packaging norm.
The Australian wing of British American Tobacco Plc. ( BTI ) is now considering pursuing the Australian government through courts. It even contemplates seeking legal advice on the matter.
In June 2011, Philip Morris was against the Australian government for the proposed ban on cigarette-packaging advertisements and was seeking billions of Australian dollars in financial compensation. The company also stated that that it had served a notice of legal claim under Australia's bilateral investment treaty with Hong Kong, which holds the government responsible for protecting Hong Kong investments in the country.
Read the full story at: Australia Harsher on Smoking
We are encouraged as Philip Morris is strengthening its brand portfolio through innovation based on enhanced consumer understanding. However, if the law of plain-packaging comes in, it would restrict tobacco industry logos, brand imagery, colors and promotional text appearing on packs, with the only distinguishing marks being the brand and product name in a standard text and color, causing billions of damage to the tobacco firms like Philip Morris.
Philip Morris currently holds a Zacks #2 Rank, which implies a short-term 'Buy' rating. On a long-term basis, we have a Neutral recommendation on the stock.
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