Carbide to Eliminate 4,000 Jobs in Restructuring Plan
Union Carbide, ravaged by chemical spills and poor financial performance, Wednesday announced a billion-dollar corporate restructuring that will include the elimination of 4,000 jobs, a $100-million safety and environmental protection program and a charge of nearly $1 billion to cover write-offs and other expenses.
The giant manufacturing company released few details of its plan, however. In a statement from Union Carbide’s headquarters in Danbury, Conn., Warren M. Anderson, chairman and chief executive officer, said the program is designed to demonstrate the company’s commitment to financial leadership and to achieve “environmental protection and safety in our operations that is second to none.”
Investment managers and shareholders have awaited a Union Carbide bullet-biting program for years because of the company’s financial troubles. Its earnings have been declining as a result of a worldwide slump in most of its major business areas, especially petrochemicals.
“The first thing that Union Carbide had to do was stop the bleeding in terms of its problems as a company,” said Leonard Bogner, a financial analyst for First Manhattan, a New York investment management firm.
Union Carbide is one of the nation’s largest chemical makers, turning out such consumer products as Glad plastic bags, Eveready batteries and Prestone antifreeze. But its reputation has been tarnished by industrial disasters, beginning with December’s poison gas leak from a subsidiary’s plant in Bhopal, India, which killed more than 2,000 persons. Two weeks ago, 135 were injured by a chemical leak from a similar plant in Institute, W. Va. Company officers recently attributed the Institute leak to errors and sloppy performance by plant personnel.
The program announced Wednesday will force Carbide to take a $990-million charge against 1985 earnings, or $8 a share. That means the company will almost certainly report a loss for this year. Most analysts had expected the company to earn $5 a share or less this year. In 1984, Carbide’s profit was $323 million, or $4.54 a share, including an $18-million write-off to cover expenses from the Bhopal disaster. Its sales rose to $9.5 billion last year from $9 billion the year before.
95,000 Employees
The plan’s principal elements include:
--Eliminating 4,000 jobs among U.S. salaried employees, or about 15% of its non-hourly work force, by early next year. The program will cost Carbide about $70 million before taxes in 1985, but the company says it will reduce expenses by about $250 million annually, before taxes, in subsequent years. A spokesman said the company expects to eliminate most of the jobs through early retirement and voluntary severance programs.
Union Carbide employs 95,000 workers in 700 facilities in 35 countries, including 48,400 in the United States. A spokesman said the plants affected by the job cuts have not yet been designated. The company operates a number of plants in the West, including, in California, a petrochemical plant at Long Beach and industrial gas plants at Ontario and San Diego.
--About $100 million more in spending on environmental protection and safety, in addition to the $120 million previously committed for 1985. The company released no details of how and where it will spend the extra money.
--Beginning immediately, the repurchase on the stock market of up to 10 million of its more than 70 million shares. At the current price, the buyback would cost about $550 million. A company spokesman said Union Carbide does not expect to borrow to finance the repurchase. (On the New York Stock Exchange Wednesday, Carbide shares closed at $55.625, up 87.5 cents from Tuesday. More than 4.6 million shares were traded, making it the most active stock on the exchange.)
Some analysts viewed the stock repurchase chiefly as an implicit response to GAF Corp., which announced this week that it holds 7.1% of Union Carbide’s stock. Although stock market professionals have speculated that New York-based GAF might be interested in some kind of business combination with Carbide, GAF executives say they are treating their holdings strictly as an investment. GAF executives were unavailable for comment Wednesday.
--About $865 million in write-offs and write-downs of inventories and facilities, including the expense of closing some plants. The sites to be most directly affected were not disclosed, but Carbide did say the charges would amount to $325 million in its petrochemical segment (about 11% of that segment’s assets) and $370 million in its metals and carbon units (25% to 30% of that unit’s assets).
Petrochemicals, metals and carbon have been consistently turning in the worst performances among Union Carbide’s businesses. Over the last five years, petrochemical earnings have declined by half; metals and carbon sales face a continued decline as their principal customer, the U.S. steel industry, fades.
Assets ‘Overvalued’
“They’re writing down the value of assets that were way overvalued anyway,” said Leslie C. Ravitz, a financial analyst specializing in the chemical industry at Salomon Bros. The revaluations may be preliminaries to selling those assets, Ravitz conjectured.
Carbide said it will also attempt to raise $500 million through divestiture of “non-strategic” assets.
--A reduction in the depreciation periods of most of its assets to a maximum of 15 years retroactive to Jan. 1. This will create a $55-million charge this year and about $50 million a year in the future. The change, which brings Carbide more into line with the depreciation policies of other chemical companies, reverses a 1980 accounting change through which the company increased its reported profits that year by $217 million, or about 30%.
--A “recapture” of $500 million of what it called “excess funding” in its employee pension plan. The total overfunding is about $700 million, analysts say. Still, any such pension changes require the approval of the Internal Revenue Service and Labor Department and could face stiff opposition from Union Carbide’s unions.
