Peace Pipe: Philip Morris Readies for Talks With Justice Department - TheStreet

Philip Morris

(MO) - Get Report

has agreed to meet with representatives from the

Justice Department

to discuss the future of the U.S. government's multibillion-dollar lawsuit against the tobacco industry.

The news follows reports on Wednesday that

Attorney General John Ashcroft

has assembled a team of lawyers to consider settling the case, rather than taking the matter to court. The Justice Department's lawsuit contends that the tobacco industry has for years made deceptive statements about the effects of smoking.

Philip Morris, while agreeing to meet with the government representatives, said it continues to "believe the lawsuit is without merit and should be dismissed" but will "listen to what they may have to say." Thus far, two of the four federal counts in the government's suit against big tobacco have been thrown out by a court.

"Just about any settlement would be a good thing for Philip Morris because it would remove a lot of uncertainty," said David Kathman, an analyst with

Morningstar

. "There's a possibility they could get some huge massive judgment against them. A settlement would remove a significant amount of uncertainty, even if they have to pay a lot."

The analyst characterized Philip Morris' response to the meeting as a "bargaining ploy," saying the company believes it has the upper hand at the negotiating table. "Philip Morris knows they're the ones that can talk tough," he said. "But behind the scenes I am sure they are trying to figure out the most favorable resolution."

Kathman said the possibility of a settlement shouldn't come as a surprise considering Ashcroft's opposition to the lawsuit and the perception of the

Bush

administration as friendlier toward corporate America than the

Clinton

White House. "It's not too shocking (Ashcroft) would back off and make it go away and not have to bother with a long expensive trial," Kathman said.

Shares of Philip Morris gained 2.7% to $47.77 in recent

New York Stock Exchange

activity. Other tobacco companies were also trading higher.

R.J. Reynolds

(RJR)

was up 2.4% to $56.10, while leaf tobacco seller

Universal

(UVV) - Get Report

climbed 1.8% to $38.10. Smokeless tobacco products maker

UST

(UST) - Get Report

was up 1% to $28.42, and

British American Tobacco

(BTI) - Get Report

rose 3% to $16.04.

But not everyone believes the industry would be better off settling. Martin Feldman, a tobacco analyst at

Salomon Smith Barney

, said he thinks there is no chance the tobacco industry will agree to any deal that involves a major sacrifice. He added that he thinks Philip Morris and maybe one or two other tobacco companies will "politely listen to proposals," but he doubts any of them will agree to a monetary settlement.

"The industry believes in the efficacy of its defenses," Feldman said. "And the Department of Justice has publicly acknowledged how weak their case is."