Manville Offers $2-Billion Asbestos Claims Settlement
Manville Corp. said Friday that it has agreed to a plan to place at least half of its voting stock, and as much as 80%, in a trust to benefit victims of asbestos-related injuries and to pledge at least $815 million as a major step toward settling billions of dollars in those victims’ claims.
As approved by Manville’s board of directors after meetings Thursday and Friday, the proposal would give effective control of half of the company--once the nation’s largest manufacturer of asbestos--to trustees for the victims of asbestos injuries. Starting four years after the company emerges from bankruptcy law protection, the trust would also get at least $75 million a year from Manville, or up to 20% of the company’s annual profits, if needed to pay claims.
The total value of the proposed settlement would exceed $2 billion, at the current market value of Denver-based Manville’s stock.
In addition, the plan preserves the right of future claimants--those who may not yet know they have an asbestos-related ailment or have not otherwise filed a claim--to sue the company if they do not choose to use the proposed settlement procedure.
Manville and other asbestos makers currently face claims from about 33,000 victims of asbestos injuries. Many claimants were exposed to asbestos when working for the federal government in shipyards during World War II and the Korean War. A procedure for handling claims and awarding money has yet to be negotiated.
The plan must still be approved by four court-appointed committees of creditors, asbestos-damage claimants and stockholders, as well as by Bankruptcy Judge Burton R. Lifland. Lifland is presiding over the company’s efforts to reorganize under bankruptcy law protection from the billions of dollars in claims filed by victims of asbestos-related diseases. Negotiations over terms of the company’s reorganization may take months, if not years.
An outline of the plan has received a generally good reaction from claimants’ attorneys and, in fact, was proposed by an attorney representing asbestos victims who may make claims in the future.
If the reorganization bears any resemblance to Friday’s proposal, it would represent a harsh outcome to Manville’s highly controversial maneuver of seeking bankruptcy law refuge from damage claims. Two other asbestos companies--UNR Resources and Amatex--have taken the same step, and it has reportedly been contemplated by such companies as A. H. Robins, maker of the ill-fated Dalkon Shield contraceptive device.
Shareholders’ Equity Cut
One bankruptcy law expert said Friday that the Manville proposal will “be highly discouraging” to managements of other companies considering filing for bankruptcy to fend off potential future liability, because of the severe impact on shareholders. Manville shareholders, who now own 100% of the company, would be left with only a 50% stake in a newly created corporation.
Harvard Law School professor Vern Countryman said that the current plan effectively means Manville “bet the company and lost.”
Another lawyer, Robert Rosenberg, counsel to the committee representing Manville’s asbestos claimants, argued that Manville’s bankruptcy filing in August, 1982, is directly responsible for the devastating dilution of the stockholders’ stake in the company.
“By filing, they have to provide now for all future claims. If they had not filed, they’d have to face those claims on a year-by-year basis, not all at once with a massive dilution” of stockholders’ investments, he said.
Manville spokesman Curtis Linke noted that shares held by the trust would be returned to the company if their sale is not needed to settle asbestos claims, but he acknowledged that such an outcome is likely only under the most optimistic circumstances.
Alternative to Suits
In a statement, Manville President J. T. Hulce said that the plan “provides a desirable alternative to tort (damage) litigation, an equitable and efficient means of compensating the valid claims of all creditors, and preserves Manville as a viable business.”
The key element of the reorganization plan is the creation of a trust fund to pay victims of asbestos-related diseases. Manville says that it will initially finance the trust with $815 million in cash, insurance company proceeds and other short-term assets, as well as 50% of its voting stock. The trust will also receive preferred stock--shares that receive preference in the payment of dividends--that can be converted to an additional 30% of Manville voting stock, if needed to pay claims.
The trust will be managed by five independent trustees acceptable to the company, the bankruptcy court and the litigation committees. The trustees, who have the right to name two members of Manville’s board of directors, must otherwise agree to vote for management’s slate of directors for four years. The trustees may sell up to 15% of the stock in each of the fourth and fifth years after reorganization and as much as they choose after that.
Annual Contributions
In the fourth through the 13th years, Manville will contribute a minimum of $75 million annually to the trust or, if needed to pay claims, up to 20% of its annual after-tax profits. In the 14th through 25th years, the company’s contributions are limited by need but could reach a maximum of $75 million annually or 20% of annual profits.
Separately, Manville will pay unsecured creditors--including banks and suppliers--$425 million, including $250 million on reorganization and $175 million, with interest, over three years. The sum would cover all of the loan principal and much of the interest claimed by these creditors.
Further, Manville agreed to “satisfactorily resolve”--with up to $50 million--damage claims filed by property owners who have had to rip out installed asbestos for safety reasons.
