Litigation Smoulders at BAT

Source from:  Fin24.com 04/26/2010

Cape Town - British American Tobacco (BAT) is widely regarded as one of the best defensive stocks available to investors. But 'defensive' takes on a new meaning when considering the litany of pending litigation faced by BAT. The latest annual report for the cigarette giant lists a dozen pages of notes around contingent liabilities and financial commitments around a variety of legal claims from all around the world. The annual report stressed it was impossible to be certain of the outcome of any particular case or the amount of any possible adverse verdict. But - perhaps significantly - BAT had not made any provision in respect of pending litigation. The annual report stated that BAT did not believe that "the ultimate outcome of this litigation would significantly impair the group's financial condition". The annual report showed that outside the US (which has been the main arena for medical reimbursement claims, class actions and individual claims against tobacco companies), BAT faced active claims in 22 markets over product liability. BAT pointed out that the only markets with more than five active claims were Argentina, Brazil, Canada, Chile, Italy, Nigeria and the Republic of Ireland. But the annual report also provided litigation details for claims in (amongst others) Denmark, Finland, Sri Lanka, Poland, the Netherlands, Israel, Columbia and Saudi Arabia (where BAT has not been served with process, but the Ministry of Health is reportedly seeking £21bn). While a number of litigation is new (filed in 2008 and 2009) there are claims that date back to the mid/late nineties. On Friday market watchers said the reams of litigation in BAT's annual report could easily unnerve investors not familiar with the tobacco sector. Most market watchers were of the opinion that BAT, to date, had capably managed the risk of litigation. Pallavi Ambekar, an analyst at Coronation Fund Managers, pointed out that litigation was not unique to BAT, but also affected other major tobacco companies like Imperial Tobacco and Phillip Morris. She argued that litigation - while clearly a risk - was something that was largely already factored in to the share price of BAT. "You have a company with strong brands, that generates a lot of cash and has strong pricing power. Offsetting this is litigation." Enditem