Philip Morris announces CCAA plans to resolve claims, litigation in Canada

Philip Morris (PM) has been informed by its deconsolidated Canadian affiliate, Rothmans, Benson & Hedges Inc., that the court in RBH’s companies’ Creditors Arrangement Act proceeding has approved a plan of compromise and arrangement for RBH. The plan, as approved, will resolve all tobacco product-related claims and litigation in Canada against RBH and its affiliates, including PMI. The court also approved substantially similar plans for Imperial Tobacco Canada and Imperial Tobacco Company and JTI-Macdonald Corp. As previously disclosed, RBH’s court-appointed mediator and monitor filed a proposed plan for RBH in October 2024. In January, RBH filed an objection to the proposed plan, arguing that the proposed plan could not be approved because the issue of allocation of the C$32.5B aggregate settlement amount among RBH, ITL, and JTIM remained unresolved. Following a judicial hearing on the proposed plan, RBH, JTIM and ITL reached a consensual resolution of all outstanding objections to the proposed plan filed by the companies, including with respect to the allocation issue, resulting in plan amendments that, among other things, will permit RBH to retain C$750M in accumulated cash. Under the resolution contemplated by the Plan, RBH, ITL and JTIM will pay an aggregate global settlement amount of C$32.5B, or approximately $22.7B. This amount will be funded by an upfront payment equal to the companies’ cash and cash equivalents on hand plus court deposits, less the C$750M that RBH will be permitted to retain, and annual payments based on a percentage of the companies’ aggregate “net after-tax income” until the global settlement amount is paid in full; RBH will be free to deal in its sole discretion with the RBH Retained Amount of C$750M, including being free to transfer or distribute such monies outside of Canada; RBH and its affiliates, including PMI and its indemnitees, will obtain a release of claims relating to the manufacture, marketing, sale, or use of or exposure to, RBH’s combustible and traditional smokeless tobacco products based on conduct prior to the effective date of the plan; related litigation would also be dismissed; Alternative product businesses will be maintained separately from RBH’s combustible business and the plan also contains a number of operating covenants that would govern RBH’s combustible business going forward until the settlement amount has been paid. Implementation of the plan is subject to certain conditions precedent, including exhaustion of appeal rights and execution and delivery of definitive documentation, such as execution of contractual releases. Subject to satisfaction of the conditions precedent, it is expected that the plan will be implemented and become effective in 2025. The payment of any dividends by RBH derived from NATI after implementation of the plan is expected to be incremental to PMI’s operating cash flow and adjusted diluted EPS. Following implementation of the Plan under the terms approved by the court, we expect that RBH will remain deconsolidated under U.S. GAAP.