ABB Asbestos Settlement May Top US$1.1B, Lawyers Say
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Published November 08, 2002

ABB Ltd., Europe's biggest electrical-engineering company, may have to 
pay four or five times as much as the $1.1 billion it's offering to 
settle asbestos claims against a U.S. unit, lawyers and analysts said. 
Chief Financial Officer Peter Voser disclosed on Friday plans for a 
"pre-packaged" bankruptcy for the unit, Combustion Engineering Inc., to 
come after creditors agree on a settlement. 

ABB expects to give up $812 million worth of the unit's assets and pay 
$300 million in cash to end 111,000 lawsuits.  ABB, hose shares have 
fallen 90 percent this year, may be underestimating the demands of 
plaintiffs, who have won about $1 billion from the Zurich-based company 
since 1990, lawyers and analysts said.  US companies have paid more than
$54 billion in asbestos claims since the 1970s, according to the Rand 
Institute.

"The price tag seems very low," said Oerjan Roeden, an analyst at Danske
Securities who rates the shares "reduce."  Plaintiffs' lawyers agree.  
They represent former Combustion Engineering employees who say they were
exposed to asbestos in boilers made by the company into the 1970s.  
Asbestos, used in insulation, has been linked to lung cancer and other 
diseases.

"It's hard for me to believe their liability is that small," Steve Kazan,
an Oakland, California-based attorney who settles about 60 asbestos 
claims a year, said in an interview.

ABB's present and future liability is more like $5 billion to $10 
billion, said Kazan, who is among those suing Combustion Engineering. 
Thomas Ringkvist, an analyst at BNP Paribas in Paris, estimates ABB may 
have to quadruple provisions to $4 billion.

"The $1.1 billion figure is based on our models, and we believe it's 
accurate," ABB spokesman Thomas Schmidt said.  Resolving ABB's asbestos 
claims would help restore confidence among investors and banks, 
including Credit Suisse Group and Citigroup Inc., which are negotiating 
with the company on extension of a $1 billion credit line, analysts 
said.  "It would be a totally new game plan," Danske's Roeden said. 
"Asbestos is holding everything back." 

ABB's credit rating was cut to junk by Moody's Investors Services last 
week, in part because of the lawsuits.  ABB shares are the worst 
performers in the benchmark Swiss Market Index, and its 500 million 
euros ($499 million) of 9 1/2 percent bonds due in 2008 traded Friday 
at 43.5 percent of their value, according to Merrill Lynch. 

Johns Manville Corp., an asbestos maker now owned by Warren Buffett's 
Berkshire Hathaway Inc., set the precedent for prepackaged bankruptcies 
in 1988.  Its Manville Personal Injury Settlement Trust has since paid 
out about $2.7 billion to asbestos exposed workers. 

Building-materials maker PPG Industries Inc., and its insurers including
Citigroup Inc.'s Travelers Property and Casualty Corp., in May agreed to
pay $2.7 billion for asbestos injury claims in a similar agreement. 

Talks with plaintiffs on the proposed settlement will probably be 
completed in four to six months, Mr. Voser said.  Under section 524 (g) 
of U.S. bankruptcy law, ABB will need support from at least 75 percent 
of them before a judge will allow a pre-packaged filing. 

That requirement "makes certain the victims can't be steamrolled by 
companies seeking relief," said Fred Baron, a Dallas lawyer who 
represents people suing Halliburton Co., the world's No. 2 oil-services 
company, over asbestos. 

ABB is one of several European companies entangled in asbestos claims in
the U.S. DaimlerChrysler AG, Cie. de Saint-Gobain SA, and RHI AG are 
among manufacturers facing lawsuits, and European insurers such as 
Allianz AG and Munich Re may be forced to pay compensation for claims. 

ABB, which bought 200 companies during the past decade in a failed bid 
to rival General Electric Co., had its first loss in 2001 after doubling
asbestos provisions. Its third-quarter loss widened to $183 million.

The company is reorganizing for the second time in as many years, and 
selling businesses with sales of more than $6 billion a year, to reduce 
debt that has more than tripled since 2000. The European Commission will
rule Tuesday on the $2.3 billion sale of its structured finance business
to General Electric. 

ABB Chief Executive Officer Juergen Dormann and attorneys at Kirkland & 
Ellis, the Chicago law firm that's representing the company, didn't 
return telephone calls seeking comment. Kirkland & Ellis also represents
W.R. Grace & Co. and McDermott International Inc.'s Babcock & Wilcox 
unit, according to the American Bankruptcy Institute's Web site. Both are
among at least 60 U.S. companies that have filed for bankruptcy 
protection due to asbestos claims. 

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