Big Tobacco companies have joined forces to fight the UK government’s plans to introduce plain packaging for cigarettes from next year. British American Tobacco Plc (LON:BATS), Imperial Tobacco Group Plc (LON:IMT), Phillip Morris International and Japan Tobacco International – the four companies that control almost all of the nation’s £18.7-billion cigarette market –will make their case against a ban on branded cigarette packs in a six-day hearing starting today in London. If they lose, it could create a domino effect across Europe, prompting other countries to introduce similar legislation.
The UK Parliament voted in March to remove all branding from cigarette packages, as part of measures to discourage children from smoking and help smokers quit. The new rules, which will come into effect in May, will force tobacco companies to sell their cigarettes in unadorned brown packs, with corporate logos replaced by graphic images of diseases blamed on smoking. Hoping to prevent that from happening, BAT and its peer will argue before the High Court that the ban infringes property rights and will be ineffective in reducing smoking levels.
“We believe that the UK government made a serious error of judgment by failing to properly take into account the Australian government’s own data, which shows that plain packaging is not achieving its public-health objectives,” BAT said in a statement, as quoted by The Financial Times.
The newspaper also quoted BAT’s smaller rival, Imperial Tobacco, as saying that legal action was “a last resort”, but tobacco companies “have been left with no option than to defend our intellectual property rights in court”. PMI and JTI are also expected to question effectiveness of plain packaging in reducing smoking levels and to defend their brand property.
Tobacco companies claim that plain packaging in Australia has failed to achieve its goals to reduce smoking among young people and has caused smokers to buy cheaper cigarettes instead of quitting altogether. Australia introduced the measure in 2012, after tobacco firms lost their fight against the legislation in the country’s high court.
A loss in the UK could have a disastrous effect on Big Tobacco. About 20 counties, including France and Belgium, are also considering introducing plain packaging rules.
“If the government wins, internationally the legal and political momentum behind plain packaging may be unstoppable,” Patrick Basham, director of The Democracy Institute think tank, said, as quoted by Bloomberg.
In today’s trading, BAT shares were down 1.3 percent at 3,690.50p, as of 08:24 GMT. The stock has risen 5.4 percent since the start of the year and the company’s market capitalisation currently stands at £68.9 billion.
The 20 analysts offering 12 month price targets for BAT have a median target of 4,025p, with a high estimate of 4,410p and a low estimate of 3,020p. As of December 09, 2015, the consensus forecast amongst 24 polled investment analysts covering BAT had it that the company will outperform the market.