WITH TOBACCO SUIT SETTLED, CIGARETTE MAKERS HIKE PRICES

NEW YORK - The nation's two largest cigarette makers wasted little time in
raising the price for a pack of smokes after sealing a $206 billion
settlement with states suing over the cost of treating sick smokers.

Industry leaders Philip Morris and R.J. Reynolds Tobacco raised wholesale
prices by 45 cents a pack yesterday, the same day they and three other
companies signed the deal.

Other tobacco companies are expected to follow suit.

One analyst called it the biggest U.S. cigarette price boost ever, saying it
could push the average retail price of cigarettes to $2.45 a pack - with the
price of premium brands like Marlboro and Camels moving even higher.

Analysts had predicted a price increase of 35 cents to 40 cents a pack to
pay for the settlement. David Adelman, tobacco analyst for Morgan Stanley
Dean Witter, said smokers may be stuck with an even bigger price rise - to
about 50 cents a pack - as distributors and retailers add a nickel to the
wholesale price boost.

He estimated the national average price of cigarettes would rise to $2.45 a
pack from the current $1.95 - an increase of nearly 26 percent.

Adelman said the price increase more than offsets "Marlboro Friday," the
April 1993 decision by Philip Morris to slash the price of its best-selling
Marlboro brands by about 40 cents a pack to slow the loss of market share to
cheaper cigarettes.

Marlboro accounted for less than 25 percent of the market at that time; it
now accounts for 38 percent of U.S. cigarette sales. Philip Morris controls
53 percent of the nation's overall cigarette sales.

Neither Philip Morris nor Reynolds offered any explanation for the price
increase. "We never comment on our pricing strategy," said Philip Morris
spokeswoman Mary Carnovale.

But Adelman said the main reason was "to fund the settlement payment. That
is a significant increase in the cost of doing business and they have to pay
for it."

He said the increase was also designed to make it less palatable for states
to boost cigarette taxes.

"Politically, it becomes very difficult if the cost of smoking has already
gone up significantly," Adelman said.

The tobacco makers signed the settlement with 46 states, the District of
Columbia and five U.S. territories, under which they would pay $206 billion
over 25 years to settle state claims for Medicaid reimbursements. Earlier,
the companies signed four separate deals to settle claims by Mississippi,
Florida, Texas and Minnesota for a combined $40 billion.

The earlier settlements had already driven up wholesale prices this year by
about 18 cents a pack.

Analysts have speculated that the increase for the larger settlement could
speed the decline in the number of cigarettes sold.

Analyst John Maxwell of Davenport & Co. has estimated cigarette sales could
shrink as much as 8 percent next year after a decline of 3 percent to 4
percent this year.

Public-health advocates favor a price increase because it could make
cigarettes too expensive for youngsters who may be thinking about starting
and could drive some smokers to quit.

Tobacco companies backed advertising during this year's congressional
session that featured smokers complaining that it was unfair to raise taxes
on cigarettes.

The ads struck a chord in some districts and Congress failed to enact the
legislation required to implement a 1997 settlement deal between the
industry, the states and anti-tobacco forces.

The deal reached last week was less expensive for the industry and contained
milder restrictions on tobacco marketing than the 1997 deal.

Checked-by: Don Beck