BAT puts issue on hold as suit looms

British American Tobacco on Wednesday postponed a planned bond issue amid investor uncertainty about the outcome of a US litigation case on Thursday, which could have implications for the whole tobacco industry.

The company planned to sell a bond of benchmark size, which typically means £300m or more, with a 10-year maturity this week.

BAT said on Monday morning that it had hired Barclays Capital, Deutsche Bank and HSBC to lead-manage the sale. A few hours later, news emerged that the Illinois Supreme Court would today announce whether it would throw out a $10.1bn claim against Philip Morris, the maker of Marlboro cigarettes and part of the Altria Group.

Yesterday, BAT, the maker of Lucky Strike cigarettes, told investors it had postponed the issue. “BAT has determined that, in light of the delay caused by the pending US litigation announcement on Thursday, and the proximity to seasonal slowdown in the
capital markets, [it] will not progress with the potential sterling transaction at this time,” said a spokesperson.

Investors welcomed the decision. “It was a sensible thing to do. Investors would have found it very difficult to commit to a deal one day before a big announcement,” said Neil Murray, portfolio manager at Scottish Widows Investment Partnership.

The judgment against Philip Morris USA is known as the Price “lights” case. The Illinois Supreme Court is considering an appeal against a $10.1bn damages award that was granted after a judge ruled Philip Morris had deceived consumers into thinking that “light”, or low-tar, cigarettes were safer than regular-tar ones.