The Economist UK - 31.08.2019

56 Business The EconomistAugust 31st 2019

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Walmart and Walgreens. All the companies

deny wrongdoing.

Mr Maris’s theory was bolstered a day

after the Oklahoma verdict, when news re-

ports surfaced of a dramatic deal in the

works involving Purdue, the federal judge

supervising the case in Ohio, and the

plaintiffs in that case, as well as various

state attorneys-general. The company ap-

pears willing to cough up between $10bn

and $12bn, with $3bn or more coming from

the Sackler family, as part of a bankruptcy

transaction that would see the firm recon-

stituted as a public trust. If the reports are

correct, the new trust would continue to

produce both opioids and (perversely)

drugs to counter their addictive effects.

The Sacklers would lose control of their

company; any future profits would go to

the plaintiffs.

All this should alarm the peddlers of the

pills. Analysts differ on just how worried

they ought to be. Tom Claps, a legal expert

at Susquehanna Financial Group, an in-

vestment firm, calculates that the industry

faces a legal risk of perhaps $37bn from on-

going cases. Patrick Trucchio of Berenberg,

a German investment bank, thinks that

distributors alone could face legal liabil-

ities of $40bn. Across the entire opioid

supply chain, Mr Trucchio reckons, the bill

could run to a whopping $150bn.

That is the worst-case scenario. For the

time being, investors seem calm. j&j’s

share price ticked up on news of the award,

a fraction of the $17bn the prosecutors had

demanded. It could pay the $572m penalty

nine times over from its latest quarterly net

profit alone. Its high-powered lawyers,

who groused that the state prosecutors’ le-

gal theory was a “radical departure” from

long-standing case law, vowed to appeal

against the ruling, all the way up to the Su-

preme Court if necessary. Even if upheld, it

may carry no weight beyond Oklahoma’s

borders. Most states espouse a common-

law understanding of public nuisance that

is much narrower than the relevant statute

in Oklahoma, notes Richard Ausness of the

University of Kentucky Law School. There

may be echoes of this argument in future

legal cases, says Ms Burch. But nothing

about the Oklahoma decision predeter-

mines outcomes elsewhere.

Other legal theories against drugmak-

ers and distributors have yet to be tested in

court. After this week’s development, they

may not get a chance. Andrew Pollis of Case

Western Reserve University School of Law

thinks the rest of the firms may fall in line

behind Purdue. “Settlement feels impossi-

ble,” he says. “But trial is unthinkable.” 7

A

decade agoAltria, which makes

Marlboros, span off its non-Ameri-

can business, Philip Morris International

(pmi). The split was driven partly by

Altria’s share price, which had been

languishing below its sum-of-parts

value, but also by regulatory hounding of

Big Tobacco over its role in causing can-

cer. When British American Tobacco

made a bid for Reynolds American,

maker of Camels, in 2016, Bonnie Herzog,

an analyst at Wells Fargo, a bank, urged

pmi to reunite with its former parent. It

took longer than expected. But on August

27th the two said they were in talks to

merge. Their combined market value just

before the announcement was $210bn.

Ms Herzog still thinks the merger

makes sense, given the benefits of scale

and geographical reach in what she calls

the “global arms race” for “reduced-risk”

products, which use fewer harmful

chemicals. Last year Altria spent $12.8bn

on 35% of Juul Labs, a maker of popular

high-nicotine vaporisers. It paid $1.8bn

for 45% of Cronos Group, a cannabis

company from Canada (which, along

with some American states, has legalised

pot).pmihas spent $6bn since 2008 to

develop iqos, a smoke-free device which

heats tobacco and is expected to repre-

sent 40% of its sales by 2025, up from

14% last year. In April it won approval

from the Food and Drug Administration

(fda) to sell iqosin America, starting

next month (under an existing licensing

agreement with Altria).

Worldwide cigarette sales fell by 4.5%

in 2018, to $714bn, and may continue to

decline. The fda’s proposed rules on

nicotine content, to make smokes “mini-

mally addictive”, could cut profits of

American tobacco firms by half, say

analysts at Morgan Stanley, a bank. By

contrast, e-cigarette revenues may grow

by more than 8% annually over the next

five years, from $11bn today, according to

Mordor Intelligence, a research firm.

For all that, merging with Altria may

expose pmi to regulatory risks from Juul,

whose controversial devices are a wor-

rying hit with teenagers. Altria could also

be a drag on pmi’s profitability, which has

exceeded its parent’s since the split.

pmi’s share price fell by 7.8% on the

news. The deal may yet go up in smoke.

Smoke alarm

Altria and Philip Morris International

Big Tobacco wants to get bigger

H

ow muchdoes it cost to bend the fu-

ture to one’s will? Give or take $100bn,

reckons Masayoshi Son, boss of SoftBank.

That is the size of the Japanese conglomer-

ate’s Vision Fund, which holds stakes in

modish technology companies including

WeWork and Uber. Mr Son is raising a new,

similarly gargantuan pot. Now the eu

wants one, too. On August 22nd news fil-

tered out of a proposal to create a €100bn

($111bn) fund to back European firms in

“strategically important” industries.

Its proposed name and high-tech focus

notwithstanding, the European Future

Fund would hark back to decades past. Pol-

iticians across the old continent once be-

lieved themselves blessed with the gift of

picking corporate winners. That 1970s ex-

periment did not end well: “national cham-

pions” backed with taxpayers’ money were

kept on life support with yet more of it.

Concerns about Europe falling behind

in technology, too, are old hat. In the early

2000s France and Germany were so wor-

ried about Google that they lavishly funded

Quaero, a made-in-Europe search engine.

A few years and tens of millions of euros

later, the project was quietly deleted.

But frustration among politicians about

the dearth of a European Google, Amazon

or Alibaba lives on. So they are minded to

try again—this time seeking to create

“European champions”, not national ones.

Industries now deemed in need of politi-

cians’ wisdom to thrive—one plausible

reading of “strategic”—include batteries

and anything related to artificial intelli-

gence (though the French in particular ap-

ply the term loosely, once blocking the

takeover of Danone, a yogurt-maker, over

PARIS

The European Union wants its own

Vision Fund

Investing in technology

Softly, softly

Hard cash

Source: Bloomberg *Proposed

Technology investment capital funds

August 2019, $bn

25

21

20

16

13

European Future Fund* 111

SoftBank Vision Fund II 108

SoftBank Vision Fund 99

Apollo Investment Fund IX

Blackstone Capital Partners V

GS Capital Partners VI

China State Capital Venture Investment Fund

GS Mezzanine Partners V