Delaware Court Orders IMB Subsidiary ITG Brands to Pay $2.51 Billion to Reynolds Tobacco

A judge in Delaware has ordered ITG Brands to pay $2.51 billion to Reynolds Tobacco in compensation, with the amount not reduced due to ITG Brands not being part of the settlement agreement in Florida.

ITG Brands plans to appeal the ruling.

According to a Reuters report on March 4th, a judge in Delaware ruled on Monday (March 3rd) that the Imperial Tobacco subsidiary ITG Brands must pay $2.51 billion to the British American Tobacco subsidiary Reynolds Tobacco (Reynolds American). This ruling is related to four cigarette brands that ITG Brands acquired from Reynolds Tobacco ten years ago, as part of a tobacco settlement agreement in Florida.

Deputy Chief Judge Lori Will of the Delaware Supreme Court has rejected ITG Brands' claim that the $251 million in damages requested by Reynolds Tobacco should not be reduced due to the costs saved by ITG Brands not joining the Florida settlement agreement.

This case stems from Reynolds Tobacco selling its Kool, Maverick, Salem, and Winston brands to ITG Brands in June 2015 in order to gain approval from regulatory authorities for its acquisition of smaller competitor Lorillard. Prior to the sale, Reynolds Tobacco had been making annual payments to the state of Florida to help offset tobacco-related medical costs, as the state accused tobacco manufacturers of distorting the addictive nature and health risks of smoking.

However, after the transaction was completed, Reynolds Tobacco stopped making payments based on these four brands. As a result, Florida sued Reynolds Tobacco and ITG Brands, and in the ruling, Reynolds Tobacco was ordered to continue paying until ITG Brands joined a settlement agreement. Reynolds Tobacco has paid Florida $251 million, covering the costs of these four brands from 2015 to 2023.

In October 2022, the court ruled that ITG Brands must compensate Reynolds Tobacco, but the issue of determining the amount of compensation is still unresolved. Will pointed out that deducting the $112.8 million "profit adjustment" payment saved by Reynolds Tobacco due to ITG Brands not joining the Florida settlement agreement from the compensation amount would discourage ITG Brands from joining the settlement agreement.

ITG Brands stated in a release that they do not agree with the verdict on liability and damages by the court and are confident in their reasons for appeal.