Major U.S. tobacco companies late Monday unveiled the largest cigarette price increases in the industry's history in a move to generate the revenues they need to settle smoking-related health claims filed against them by states.
Philip Morris Cos., the nation's largest cigarette maker, and R.J. Reynolds Tobacco Co., the No. 2 U.S. producer and a unit of RJR Nabisco Holdings Corp., told Reuters they had raised their list -- or wholesale -- prices by $22.50 per 1,000 cigarettes, adding about 45 cents to a pack sold at retail.
The move was matched by the nation's third-largest cigarette company, Brown & Williamson Tobacco Co., a unit of Britain's British American Tobacco Plc., and was likely to be met by the No. 4 producer, Lorillard, a unit of Loews Corp., a leading Wall Street analyst said.
A Brown & Williamson spokesman declined to confirm or deny the price increase, and a spokesman for Lorillard was not available.
The 38 percent list price hikes mean smokers will pay about 17 percent more for a pack, Sanford Bernstein analyst Gary Black said.
"It's the largest price increase in the industry's history," he said.
A pack of cigarettes now costs $2.75.
The move had been widely expected in the aftermath of the $206 billion settlement to Medicaid-cost claims announced last week between the companies and 46 state attorneys general. New York State would get $25 billion under the settlement.
The companies reiterated in a joint statement Monday evening that they have accepted the proposed settlement, which must be approved by the courts of each participating state.
The settlement, the largest civil litigation payoff ever, bans cartoon characters from tobacco ads and funds anti-smoking campaigns.
Those provisions led lawyers for the Federal Trade Commission to announce Monday that they would move to dismiss their case against R.J. Reynolds, which they had accused of targeting children with the popular Joe Camel advertising campaign.
Government lawyers said the tobacco deal would achieve the relief they had sought in their complaint against R.J. Reynolds.
"We believe that continuing this litigation in light of the state settlement would serve no public purpose and would be merely a waste of resources," commission attorney Joel Winston told an administrative law judge.
In filing their complaint last year, federal regulators had asked the judge to make R.J. Reynolds finance a 10-year anti-smoking campaign directed at children and to bar the company from reviving Joe Camel or similar characters. The firm dropped the campaign voluntarily more than a year ago.
The price increases will generate about $10 billion in additional annual revenues for the companies, about equal to the amount they need for their first settlement payments next year and other associated costs, Black said.
The price increases are just the latest in series over the past year that have driven list prices up 68 percent, Black said. By implementing the increase at once rather than incrementally, Black said the companies are trying to force the wholesalers to unload the huge inventories they have accumulated.