Philip Morris Continues Fight - Analyst Blog

Tobacco biggies continued their fight against the Australian government for forcing them to use plain packaging in order to bring down the smoking population in the country. For the second time, Philip Morris International, Inc. ( PM ) has chosen to challenge the Aussie legislation, which was passed last month, and thus filed a lawsuit with the country's High Court on Tuesday.

The ruling by the Australian 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 prevalent norm of allocating 30% of the front space. Supposedly, the law is to take effect in December 2012.

Moreover, it requires brand names to be written in a standard font against a drab dark-brown background starting 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 has been 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.

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.

Philip Morris, with a 37% market share in Australia for its brands including Marlboro and Alpine, said the government had passed a law that acquired its "valuable brands and intellectual property" without offering any compensation.

Tobacco companies are increasingly relying on their packaging to build brand loyalty and grab consumers. Packaging is one of the few advertising venues, which the tobacco firms can use, after the government curbed their presence in magazines, billboards and TV.

Separately, the tobacco honchos in America have appealed to U.S. District Judge Gladys Kessler to delay her verdict regarding an old lawsuit against tobacco industry, and wait until the other cases against tobacco regulations are sorted.

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.

PHILIP MORRIS ( PM ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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