Fitch: FDA control of tobacco may reshape industry

If legislation passes to give the Food and Drug Administration the authority the regulate the tobacco industry, it could reshape the industry's competitive landscape, Fitch Ratings said in a new report Thursday.

The U.S. House overwhelmingly passed the legislation in July, but it requires approval by the Senate and President Bush. Bush's administration has said he will veto the bill.

The bill would empower federal public health authorities to regulate tobacco for the first time.

Fitch said it does not expect the law to be put into practice this year but said that if a Democrat is elected to the White House, the eventual passage of the bill is "highly probable."

Analysts have said Richmond, Va.-based Philip Morris USA stands to benefit if the FDA receives the authority to regulate the tobacco industry. Experts have said the measure _ which is favored by PMUSA-owner Altria _ would benefit Altria because the greater restrictions could solidify its position as the market leader and owner of the Marlboro brand.

Fitch believes more rules on how to advertise and promote cigarettes would reduce competition and benefit the companies with bigger market shares.

The nation's second-biggest cigarette maker, Reynolds American Inc.'s R.J. Reynolds Tobacco Co., has said it opposes the bill.

Fitch Senior Director Wesley Moultrie II said any such law could lead to further consolidation as smaller players suffer the burden of compliance.

Fitch analysts further noted that new rules could lead to greater development of cigarette alternatives.

Altria, Reynolds and others are already expanding the number of non-cigarette products they sell, such as cigars, pouchlike snus and snuff.