Reynolds American shares slip after jury drops $23.6B in punitive damages on tobacco company

MarketsAssociated Press

Shares of Reynolds American stumbled in premarket trading Monday in the first trading since a Florida jury awarded $23.6 billion in punitive damages against its R.J. Reynolds Tobacco Co.

The huge damage figure, which was awarded to the widow of a longtime smoker who died of lung cancer, will likely be overturned when it is appealed, Stifel analyst Christopher R. Growe said in a research note. Even so, the analyst said the award may stir concern about its near-term impact on a $25 billion acquisition Reynolds American Inc. announced last week.

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The company plans to create the second-largest tobacco maker in the United States with its acquisition of Newport maker Lorillard Inc. The deal also will build a major player in the market for menthol cigarettes, which are becoming a bigger part of the business. The deal is expected to close in the first half of next year.

The damages in the court case were awarded after a four-week trial and were in addition to $16.8 million in compensatory damages that had already been awarded.

Growe said in his note that the punitive damages far exceed clear standards set by the Supreme Court in terms of their total compared to compensatory damages.

"While its implications are not clear at this time, this large verdict would seem to complicate the company's acquisition in the short-run during the appellate process," Growe wrote.

Shares of Reynolds American slid 2.8 percent, or $1.65, to $57 in premarket trading Monday about an hour and a half before markets opened. The stock had climbed about 17 percent so far this year, as of Friday's close.