By Geoffrey Smith
July 31, 2017

Good morning.

Big Tobacco is still reeling this morning from the Food and Drug Administration’s announcement on Friday that it wants to cut the nicotine levels in traditional cigarettes to amounts that are non-addictive.

The news had wiped some $35 billion off the market value of the biggest four companies in the sector, Altria, Philip Morris International, BAT and Imperial Tobacco. The last two are down heavily again this morning in London.

The FDA’s move stands in sharp contrast to the lighter-touch regulation agenda that the new Trump administration has brought to other sectors. Wall Street is having its regulatory burden lightened. Constraints on pollution that the Obama administration had intended to put on the auto and utility sectors are also being unwound, and the Federal Communications Commission is determined to break up the ‘Net Neutrality’ regime proposed under Obama, in favor of letting the market—rather than bureaucrats—meet the challenge of getting inconceivable amounts of data to consumers in the format they want.

What explains the difference? I would venture it’s the asymmetrical nature of the problem. There is no argument to offset the overwhelming weight of scientific evidence against combustible nicotine products beyond narrow corporate interest. By contrast, there are plenty of arguments to make in favor of the others. Lighter financial regulation increases access to capital and supports growth. Cheaper energy has an immediate impact on consumers’ disposable income (and the running costs of businesses), and regardless of the merits of the arguments for and against Net Neutrality, they owe at least as much to philosophy and self-interest as they do to objectively-proven, peer-reviewed science. It obviously helps that the coalition of support for Big Tobacco has been whittled down over time to a degree where it enjoys very few friends outside its own circles.

Either way, it looks like the tobacco industry’s remarkable record of creating value for shareholders despite being in secular decline is facing its biggest challenge yet.

News below, including M&A shenanigans in the cable and mobile carrier business. (Reuters has also just reported that Discovery has agreed to buy Scripps Networks for $11.9 billion)

Geoffrey Smith

(Alan Murray tells me he is ‘trying to catch up on his sleep’. The conspiracy theorist in me suspects that this isn’t true because he never sleeps, but I pass it on in the absence of a more convincing explanation.)


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