Big Tobacco Up in Smoke

Is this the beginning of the end for Big Tobacco? Yesterday the Senate took what surely will be seen as an historic step to pass legislation putting the tobacco industry under the regulation of the Food and Drug Administration, the New York Times reports. The new Family Smoking Prevention and Tobacco Control Act does not ban smoking outright, but it would give the FDA power to reduce nicotine content and regulate chemicals in cigarettes. Since 1998, the industry has spent nearly $308 million in lobbying to block the bill, but now it is expected to be signed into law by President Obama as early as next week. "This is a historic step changing the nature of tobacco in society forever," one leading tobacco academic tells the NYT. Cigarette companies complain that the bill will put "severe, perhaps unconstitutional, restrictions on advertising and packaging" and could derail their business plans to develop smokeless tobacco products, reports the Wall Street Journal.

In the big banking news of the day BlackRock (BLK) agreed to buy Barclays Global Investors for $13.5 billion in cash and share, the Financial Times reports. The deal makes the U.S. money manager the biggest in the world, with more than $3 trillion in assets under management, "roughly twice the size of its closest competitor," notes the WSJ. Under the terms of the deal, Barclays PLC (BCS) will own nearly 20 percent of BlackRock, while Bank of America (BAC) will see its existing stake in BlackRock—acquired as part of its purchase of Merrill Lynch—fall to just under 35 percent from the current 49 percent. The agreed-on price is a substantial markup from what analysts thought BGI would fetch, underscoring how capital markets have bounced back in recent months. It also will mean a big payday for both Barclays and some of its executives. "Some of BGI’s 3,500 staff worldwide—including Bob Diamond, Barclays’ president and chairman of BGI—stand to share a payout of $1bn from the deal as a result of their particpation in an equity ownership plan approved by Barclays’ shareholders in 2000," notes the FT.

The showdown in Washington pitting embattled Bank of America CEO Kenneth Lewis versus Fed Chairman Ben Bernanke and ex-Treasury Secretary Henry Paulson began yesterday, but it was quickly stripped of the high-stakes tension the business press had been promising all week. Instead, Lewis testified to Congress that, yes, he was pressured by Washington to cinch the Merrill Lynch deal late last year, but he was never threatened. The NYT reports Lewis' testimony was almost cordial. Lewis "backed away from earlier statements in which he suggested that Mr. Bernanke and Mr. Paulson had urged him not to reveal Merrill’s troubling state before the merger was sealed, calling them 'two honorable people' who had 'good intentions,' " the NYT writes. Still, Congress doesn't appear to let this investigation drop so easily. According to the Los Angeles Times, some members of the House Oversight and Government Reform Committee were openly skeptical. "We don't buy it," the LAT quoted, Rep. Elijah E. Cummings as saying. Congressional inquisitors are divided on who's to blame and who should be pursued—an overzealous Bernanke and Paulson, or an opportunistic Lewis? As Rep. Edolphus Towns, the committee chairman, remarked, "The Treasury Department provided $20 billion for a shotgun wedding. But the question may be who was holding the shotgun?" Bernanke will soon get his day before the same inquisitors.

Slumping demand and higher fuel prices are providing a powerful one-two punch to the already hobbled airline industry, forcing Delta Air Lines Inc. (DAL) and AMR Corp.'s (AMR) American Airlines to cut flights and staff, the WSJ reports. According to Bloomberg, American has decided to eliminate 1,600 jobs, while Delta has not hit upon a firm number yet. And, it reports, US Airways (LCC) is asking "400 flight attendants to take leaves or it will resort to layoffs." The carriers are also feeling the effects of the newly minted pandemic, swine flu, which is taking a toll on travel to and from Mexico and Asia. "Continental Airlines Inc. earlier this month said the outbreak had cost it $30 million in revenue in May, and Delta on Thursday said the scare could cost the airline as much as $150 million in the second quarter," the WSJ writes.

Finally, you might want to reconsider the "benefits" of that free company cell phone. The WSJ reports the Internal Revenue Service has proposed employers assign 25 percent of an employee's annual phone expenses as a taxable "fringe" benefit. One potential way to avoid the tax: Make more personal calls on the job!