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Philip Morris’s Canada division gains creditor protection

Philip Morris’s Canada division gains creditor protection

Philip Morris International Inc.’s Canadian division received creditor protection in Canada, a move that holds off legal action against the tobacco company in the country.

Rothmans, Benson & Hedges Inc. was granted protection by the Ontario Superior Court under Canada’s Companies’ Creditors Arrangement Act, the Canadian division said late Friday in a statement. The move includes an initial order to stay proceedings in a Quebec class action suit and other pending litigation, including those brought by all 10 Canadian provinces tied to the recovery of health-care costs, the company said.

The process provides “a promising opportunity to resolve all the pending litigation we have faced for decades in Canada,” Peter Luongo, managing director of Rothmans, Benson & Hedges, said in the statement.

Class action lawsuits filed by Quebec smokers already prompted two other tobacco companies to seek creditor protection after they were ordered to pay damages of about $17 billion. British American Tobacco Plc, Philip Morris and a local unit of Japan Tobacco Inc. are defendants in lawsuits by Canada’s 10 provinces that want to recoup health-care costs linked to the effects of smoking, a move reminiscent of the U.S. in the 1990s. The first of these cases, some of which date back almost two decades, is scheduled to come to trial this year.

The Canadian Cancer Society poured scorn on RBH’s latest move, noting that the company is profitable and nowhere near bankruptcy.

“The company’s strategy is to obtain a sweetheart settlement of all tobacco lawsuits in Canada, and then to carry on business as normal,” said Rob Cunningham, senior policy analyst at the organization.

Canada’s three most-populated provinces alone have signaled combined claims of more than C$500 billion. Analysts are predicting a similar outcome as in the U.S., where tobacco companies negotiated smaller settlements that allowed them to stay in business.

The legal threat posed by Canada was amplified earlier this month when the three companies’ local divisions were ordered to pay damages of about C$14 billion in a set of class actions filed by Quebec smokers. That lawsuit, which prompted the Canadian units of BAT and Japan Tobacco to file for protection from creditors, is separate from the provincial claims.

“While RBH disputes liability in the Canadian litigation given the widespread awareness of the health risks of smoking, we are optimistic about reaching an arrangement that could resolve all pending litigation and allow RBH to focus on the future,” Luongo said.

In a separate statement, Philip Morris said it will deconsolidate the Canadian division from its financial statements, resulting in a one-time non-cash charge of about 10 cents a share to be taken in the first quarter. The New York-based company revised its earnings-per-share forecast to be at least $4.90 at prevailing exchange rates as a result of the move. Deconsolidation will not affect Philip Morris’ annualized dividend rate, the firm said.