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January/February, 2007

Tech center wins recognition
Guangxi — The State Tobacco Monopoly Administration (STMA) — the regulator of China’s tobacco industry — issued an official document to recognize the technical center of southwest China’s Guangxi Regional China Tobacco Industry Corp. as a national-level technical center for the tobacco industry.

Over recent years, Guangxi Regional China Tobacco Industry Corp. has kept increasing investment in the development of the technical center, spending nearly 100 mn yuan (US$12.5 mn) purchasing high-tech, precision, or sophisticated equipment for technological research and development.

Cigarettes down, cigars up
Berlin — Germans are smoking fewer cigarettes, but more cigars, cigarillos, and pipe tobacco, according to statistics released by a government agency.

Cigarette sales declined 2.5% in 2006 to 93 bn units, but sales of cigars and cigarillos were up 37.7% to to 5.6 mn units, the Federal Statistics Office said. Sales of pipe tobacco rose 14.7% to 922 tons, the statistics office added.

The government earned a total of 23.1 bn euros (US$30 bn) in taxes from tobacco products last year, 859 mn euros or 3.6% less than 2005.

United Kingdom
No bidding war seen for Gallaher
London — Since Japan Tobacco’s £7.5 billion proposal to take over its UK counterpart Gallaher was announced in mid-December, investors have clung to hopes that a rival bidder will emerge and fuel a price war.

But the last hopes seemed to be drifting away just days before Japan Tobacco’s offer document is expected to be distributed to Gallaher stockholders.

Cantor Fitzgerald analyst Stephen Pope said: “We are probably at the stage now where the prospect of someone else coming forward has evaporated.”

British American Tobacco (BAT), the No. 2 firm globally, was thought the most likely to make a counterbid for Gallaher. Analysts said that both Altria and Imperial would face competition issues. Altadis, the Franco-Spanish owner of the Gauloises Blondes and Gitanes brands, was considered too small to make an approach.

The Gallaher deal is expected to be finalized by April or May.

United Kingdom
BAT closes Southampton site
Southampton — British American Tobacco (BAT) has made its last cigarette in Southampton, ending a run of production that has lasted nearly a century. The company, whose products include Lucky Strike, Kent, Dunhill, and Pall Mall cigarettes, plans to move production overseas to “more competitive” factories in the Far East and Eastern Europe.

BAT first started manufacturing cigarettes at its Regents Park Road site in 1926, but actually began producing cigarettes in Southampton in 1913 at another town site.

A spokesman for the company is reported as saying: “After 80 years on this site we have made the difficult decision that the Southampton factory is no longer economically viable. We have therefore transferred production to other factories in the Far East which are closer to our destination markets as well as more competitive factories elsewhere in Europe.”

United States
Good news, bad news for manufacturers
Miami — A decision by the Florida Supreme Court proved to be a mixed bag for the U.S. tobacco industry. The justices agreed with an appellate court’s decision to reverse the $145 bn in punitive damages awarded in 2000 in a landmark class-action suit against cigarette makers. The court also decided to decertify the class, saying that the remaining issues “are highly individualized and do not lend themselves to class-action treatment.”

However, the 4-2 decision also delivered some bad news for tobacco manufacturers: Plaintiffs will still be allowed to bring individual claims against cigarette makers. In their decision, the justices said that “the class should be decertified without prejudice to the class members filing individual claims within one year of the issuance of our mandate.”

In the original decision in the case of Engle vs. Liggett Group et al, the final judgment awarded $12.7 mn in compensatory damages to three individual plaintiffs and $145 bn in punitive damages to the entire class, but the Third District Court of Appeal reversed that judgment. The state’s highest court said, “although we approve the Third District’s reversal of the $145 bn class-action punitive damages award, we quash the remainder of the Third District’s decision.” Two of the three individual plaintiffs in the original suit will have their compensatory awards reinstated.

Tobacco International - January/February, 2007

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