Commonwealth Brands, Imperial Tobacco’s newly acquired US tobacco business, is under threat from proposed new laws introducing tough regulatory powers over the industry.

Imperial, Britain’s second-largest cigarette company, acquired Commonwealth, the fourth-biggest player in the US, two weeks ago for $1.9 billion (£975 million).

But new Bills introduced last week in the US House and Senate, designed to give America’s Food and Drug Administration (FDA) fresh powers to regulate the tobacco business, have cast a shadow over the deal.

“It could lead to a more complex tobacco regulatory climate,” Imperial said in a statement to The Times.

BACKGROUND

• Imperial gets fired up over Altadis bid

• Imperial snubbed as Altadis opens books

• Imperial’s investors back bigger rights issue

• Imperial Tobacco bids £7.6 billion for Altadis

• New laws could stub out Imperial’s US hopes

Davis launches great tobacco merger

An Imperial-Altadis deal is logical. The company wants Altadis’s stable of brands, ranging from Gauloises Blondes to Cohiba and Montecristo

Related Internet Links

• Imperial Tobacco company information

• Imperial Tobacco share price chart

• Imperial Tobacco forecast

At present, there is relatively little regulation of the tobacco business in the US, home to an estimated 45 million smokers. But federal controls, supported by many Democrats, could lead to a string of changes that threaten to undermine the profitability of the new business.

They include new restrictions on advertising, possible bans on the marketing of “light” or “low tar” products, bigger and more prominent warnings, changes to packaging and stricter rules about the marketing of tobacco products to children.

If passed, the changes could have a bigger effect on smaller players than on Philip Morris, America’s biggest tobacco company. Industry experts say that Philip Morris, which controls over half the US cigarette market, would be best placed to absorb the extra costs and would benefit from advertising restrictions that would make it tougher to develop new brands.

Philip Morris, which owns the world’s number one cigarette brand, Marlboro, is the only tobacco company that supports the new legislation.

Having acquired Commonwealth, which owns brands including USA Gold and Sonoma, the eighth and fourteenth bestselling brands in the country, Imperial now has a 3.7 per cent share of the US cigarette market.

The company said that it was “used to successfully developing our business” in tightly regulated environments and added that it was “confident of achieving similar results in the US regardless of who regulates the industry”.

A spokesman for RJ Reynolds, America’s second-biggest tobacco company and owner of brands such as Camel, told The Times it would oppose any legislation that it believed “conveys an unfair advantage on the largest manufacturer”. It said the legislation could create an anticompetitive environment in the cigarette market.

Steven Weiss, a spokesman for the US Cancer Society, which supports the legislation, said: “We think we are well positioned to pass this legislation in this Congress. Our key point is public health. We don’t care about the impact on the tobacco firms. This is an industry that runs reckless at this point.”

An earlier attempt to introduce FDA regulation over the tobacco industry foundered in 2000 when the tobacco companies sued and the Supreme Court overturned the Bill.

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