Tobacco lights up for Bush Industry sees Bush as pro-business, anti-litigation, better for bottom line NEW YORK (CNNfn) - Anyone who watched the three presidential debates over the last few weeks may have noticed one subject conspicuously absent - tobacco.



We had Medicare. We had the Middle East. We had education, but we didn't have tobacco.



That does not mean it's no longer an issue. Neither of the candidates wants to rattle that cage just now, industry watchers said. Texas Gov. George W. Bush and Vice President Al Gore don't want to come right out and say they are anti-tobacco or pro-tobacco just a few short weeks from the election.







While the candidates may not be talking about it, tobacco companies are bracing themselves for a new Commander in Chief. The outcome of the election could affect their bottom lines.



Without a doubt, cigarette makers are pushing for Bush. The Republican candidate has said that if elected, he would end the Department of Justice lawsuit filed earlier this year charging Big Tobacco with racketeering violations for misleading consumers in advertisements about the health effects of smoking.



On the other hand, Gore has repeatedly said he would support the lawsuit and pursue severe cigarette ad restrictions and FDA regulation of nicotine as an addictive drug.



Taking a glance at tobacco's bottom line, it's easy to see why Bush is the industry's favorite.







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Just a few short months ago, anti-tobacco advocates seemed to have the industry on its knees. Hundreds of class action suits brought by smokers have resulted in huge payouts from the tobacco companies, which have also been subject to higher excise taxes. A Florida jury handed smokers an incredible $145 billion judgment against the companies (Florida has since placed caps on such settlements). And just two weeks ago, tobacco executives admitted before the World Health Organization that nicotine is addictive and that it kills.



But take a look at the industry now and it's obvious the broad leaf has not withered. In fact, tobacco margins have improved sequentially over the past four quarters. And cigarette makers continue to gain share in the domestic market, said Ann Gurkin, a tobacco analyst with Davenport & Co.



The largest, Philip Morris �(MO: Research, Estimates), maker of Marlboro cigarettes, is a $75 billion company whose earnings are growing at 14 percent a year. Its stock is trading around $33, near a 52-week high and far above the $18 it traded at last spring.



R.J. Reynolds (RJR: Research, Estimates) shares are also trading in the low $30 range, up from their 52-week low of $15.







The politics of business: During the final month of the 2000 campaign, CNNfn.com will examine how key industries would fare under a Bush presidency or a Gore presidency. Each Monday and Thursday, CNNfn.com will turn its attention to a new sector. On Thursday, we will profile what each candidate would mean for the pharmaceutical industry.







So what happened? Analysts believe that government officials realized that hefty penalties, enough to bankrupt tobacco companies, are not in the best interests of capitalism. Also, given the Florida verdict in July and the $246 billion settlement reached by tobacco companies and the states last year, anti-tobacco momentum has slowed.



"I attribute it to innovative marketing, rebellion by the people, you tell them not to smoke they're going to do it anyway, and a faster resilience by the industry," Gurkin said.



So it's no wonder that of the more than $6 million tobacco has given to candidates in 2000, $5 million has gone to Republicans.



Bush, whose top political strategist Karl Rove is a former Philip Morris consultant, has a history of vetoing legislation to prevent local governments across Texas from regulating tobacco use and distribution.



Tobacco also opts for Bush because he is pro-business, Gurkin said, adding that his comments during the campaign suggest he would oppose future rate hikes on cigarette taxes at the federal level. Tobacco companies are already heavily taxed, having paid $5.2 billion to the government in 1999.



If cigarette prices were to increase, Gurkin said, consumption would drop.



Gore has said he would raise federal excise taxes on tobacco by 25 cents a pack, said Sandya Raju, a tobacco analyst with Merrill Lynch.



Raju also said Bush supports tort reform that would place caps on the amount of damages companies could be fined in class action suits.



"I think it's just the fact that they prefer to have someone in the White House who isn't going to pursue direct litigation claims against them," Raju said, adding that the next president would also likely end up appointing at least one new Supreme Court justice, influencing sentiment toward tobacco.



And that can be key. Although the cost of tobacco litigation is enormous, companies budget for these costs and it so far has not eaten into their profits. The harm from litigation lies in the diminished public image that comes with the publicity over the suits.



"It's not that Bush is pro-tobacco. I just think that Bush is less litigious-minded, and he is not for interfering with the way business is run," Raju said.



Bush has a history of instituting litigation caps on payouts for other industries.



"As governor, Bush took a stand to limit liabilities imposed in lawsuits against gun manufacturers, HMO's and other businesses," Gurkin said in a research note. "Because tobacco is also a legal product, we believe Bush would support similar limits on cash damages awarded to plaintiffs in lawsuits filed against tobacco companies."







On the other hand, Gore, has been criticized for his anti-tobacco stance since his family derived much of its income from tobacco in Tennessee, one of the largest tobacco producing states.



Since Gore's 46-year-old sister died from smoking-related lung cancer in 1984, critics have said they believe the vice president is emotionally tied to the tobacco issue.



David Adelman, a tobacco analyst with Morgan Stanley Dean Witter, agrees that tobacco prefers Bush, but believes Gore would not be as anti-tobacco as he and President Clinton have been in the past since other issues such as health care, prescription drug prices and school violence have moved to the forefront.



"I think tobacco has had its moment in the sun, and the country has moved on," Adelman said. "Gore hasn't brought tobacco up as an issue. Polls show there's very little value in bashing tobacco. There's value in beating up on drug companies, insurance companies, HMO's, oil companies, but the public is just not as concerned about tobacco."



One former Washington tobacco lobbyist said tobacco has paid its dues in the last few years and that the issue has moved on. He believes both candidates understand that.



"These companies have agreed to pay out almost $250 billion. Lots of states are using that money for lots of things," the lobbyist said. "I don't think that people see tobacco as being that much in the public policy debate as it was two years ago."



Whether or not that's true will come to light after November.

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