Going gets tougher on tobacco road

HOPES that US lawsuits and huge damages awards in the tobacco sector were a thing of the past went up in smoke.

US giant Philip Morris admitted that an Illinois appeals court found a trial judge exceeded his authority in reducing the bond Morris must put up to appeal a £6.3bn class action judgment. That prompted heavy selling of the sector.

Back in March, circuit court judge Nicholas Byron found Morris had deceived smokers into thinking 'light' cigarettes were safer than regular ones and ordered it to pay £6.3bn damages. He also said it must post a £7.5bn appeals bond before seeking a review. He later reduced the sum to £3.75bn, plus quarterly payments.

The issue has been sent back to the trial court for further consideration and Morris has lodged an appeal. All in all, it spells fresh uncertainty for a sector that has been a good performer of late. Fund managers have been attracted by high yields backed by strong cash flows.

Gallaher, persistently rumoured to be on BAT's shopping list, lost 17p to 558p. BAT fell 14p to 650p and Imps 27p to 999p.

Today sees the conclusion of an auction for Ente Tabacchi Italiano, the Italian state tobacco company that is being privatised. BAT is one of three bidders and the winning bid is expected to be worth £1bn.

Drugs giant AstraZeneca, hyperactive last week after the Food & Drug Administration approved its cholesterol-lowering drug Crestor for marketing in the US, collapsed 101p to 2459p. Goldman Sachs did the damage by raising concerns about what Exanta, its anti-clotting drug, might do to your liver.

Rival GlaxoSmithKline was also friendless at 1175p, down 37p.

The Footsie lacked inspiration and closed 25.1 points off at 4102.5. Wall Street tried to help but failed to hold on to an early 60-point gain to trade 41 down. Its early rise followed Merrill Lynch's excellent second-quarter figures and Federal Reserve chairman Alan Greenspan's bullish comments that low interest rates are here to stay for a while to ensure recovery.

Reflecting the equity market's recent resurgence and talk of a pending bullish circular, insurers were in fine fettle. Royal & Sun Alliance advanced 6 3/4p to 158 3/4p, Aviva 14p to 473p and Prudential 8p to 437 1/2p.

Conservatory builder Ultraframe erected a speculative gain of 21p to 297p amid vague bid talk.

Concern about a possible deregulation of the UK pharmacy market saw Alliance Unichem sold down to 491 1/2p before closing 7p easier at 502 3/4p.

Tomb Raider games group Eidos dropped 13 1/2p to 130p on hearing that Jeremy Heath-Smith, its development director and managing director of Core Design, the division that invented Lara Croft, has resigned with immediate effect.

Awaiting the identity of the South American billionaire who approached chairman Doug Ellis for his 33% stake in the Premiership football club, Aston Villa scored another gain of 22 1/2p to 210p for a two-day jump of 36 1/2p. Property entrepreneur Jack Petchey must be laughing. He recently acquired 13% at a much lower level.

Aim-listed GB Railways, which runs the Anglia trains franchise that takes many stockbrokers from their homes in Colchester and beyond to Liverpool Street station, puffed 36 1/2p higher to 271 1/2p on a bid approach at 250p a share.

GBR's board rejected a cash offer at £1 from Management Consortium last summer and shareholders have since watched it pick up a fair head of steam.

Steel group A Cohen eased 1/2p to 4 1/4p after terminating bid talks.

Software group Superscape improved 1 1/4p to 19p following the board appointment of Mike Inglis, a director of chip maker ARM. Turnover swelled to almost 3m as dealers heard that contract news is imminent.

SHARES of wine-by-the-case retailer Majestic Wine have not stopped rising despite John Apthorp and family trusts recently selling a lump at 570p, reducing their stake from 46.3 to 31.2%. They rose a further 4p to a peak of 664p after Altium Capital said buy and set a target price of 715p. Like-for-like sales were 8.1% higher in the first 10 weeks of 2003-2004 and remain strong, helped by the hot weather.