Solutia Inc. and Monsanto Co. agreed to pay a combined $600 million to settle claims over PCB contamination by about 20,000 Alabama residents.
The agreement includes payments to homeowners and ends a long-running trial in state court over pollution in Anniston, Ala. It also resolves a federal case that was set to go to trial this fall.
Solutia, which had threatened bankruptcy citing litigation costs, said it will pay $50 million of the settlement and Monsanto will pay $390 million. Approximately $160 million of the cash settlement will be provided through the settling companies' insurance.
In addition, Pharmacia and its new parent, Pfizer Inc., agreed to join Monsanto and Solutia in funding a research lab, community clinics and free pharmaceuticals programs, which bring the total settlement value to more than $700 million, according to plaintiffs' lawyers.
Despite the settlement's size, the pact is likely to ease Wall Street's jitters about Monsanto, an agricultural concern. The original Monsanto, of St. Louis, split off Solutia in 1997. Monsanto then was acquired by Pharmacia, which last year split off a new, smaller Monsanto as an independent company. Earlier this year, Pfizer bought Pharmacia, creating a complex web of potential defendants. Solutia said the settlement includes no admissions of wrongdoing and resolves all outstanding claims, including potential punitive damages.
The current Monsanto was second in line to pay for the mounting litigation over PCBs, or polychlorinated biphenyls, behind Solutia. The risk to Monsanto grew when Solutia, also of St. Louis, said recently that it was considering seeking bankruptcy-court protection because of the rising litigation costs. Solutia says it has spent more than $50 million cleaning a plant and surrounding area in Anniston and it was facing more than $100 million in verdicts already. Glenn Ruskin, a Solutia spokesman, said the company still faces financial challenges, including pension-fund obligations and the refinancing of a bank facility, but "this puts us in a better position to resolve them."
Hugh Grant, Monsanto's chief executive officer, said in a statement released late Wednesday that the settlement removes "an area of great uncertainty for our shareholders and employees related to our contingent liabilities."
Of DOW JONES NEWSWIRES NEW YORK -- Solutia Inc. (SOI) can breathe easier, and so can its bond- and shareholders, after the company reached a settlement in an environmental litigation case in Alabama late Wednesday.
And while it still faces several hurdles, including a large underfunded pension gap, bondholders at least view the settlement as a first big step in tackling the challenges ahead.
"They've certainly knocked down the big tree in their way, but they have some saplings they still have to maneuver around," said Bob Amenta, senior securities analyst at Conseco Capital Management Inc.
News of the settlement came as a surprise to bondholders after the company just last week said in its 10-Q filing that it may have to file for Chapter 11 bankruptcy protection.
Solutia's 11 1/4% bonds due 2009 were trading at 88 cents to the dollar Thursday, up from their close at 71 Wednesday. Its 7 3/8% bonds due 2027 were at 61 cents on the dollar, up from 37 Wednesday, said Norm Boucher, portfolio manager at Putnam High Yield Trust. Putnam Investments has about $70 billion in fixed income assets under management.
Boucher also said that according to his dealers, the rebound in prices is drawing new buyers to the bonds.
The company's stock price soared 300% Thursday to $3.60 per share from 90 cents Wednesday night.
Late Wednesday, Solutia , Monsanto Co. (MON), Pfizer Inc.'s (PFE) Pharmacia unit and the companies' commercial insurers said they had reached a cash settlement of $600 million with plaintiffs in the Abernathy and Tolbert cases.
The allegations were over environmental contamination and health problems stemming from the companies' use of polychlorinated biphenyls, an electrical insulater banned in the 1970s.
Under the terms of the agreement, Solutia will pay $50 million over 10 years, with a first payment of $2.5 million in each case due in 2004.
The size of the settlement was a big surprise and considerably lower than expected, said Tom Hauser, portfolio manager at Conseco Capital, which holds Solutia bonds. Conseco has $26 billion in assets under management.
Hauser had expected the litigation to cost Solutia upwards of $2 billion to $5 billion if it had proceeded to a federal trial.
"We are relieved to have this litigation behind us because it removes an obstacle and changes the dynamics as we continue to work on other real issues, refinancing our bank facility, addressing our future bond maturities, pension obligations and legacy liabilities," said Solutia chief executive officer John Hunter in a conference call Thursday.
The company has a $300 million credit facility due to expire on Aug. 13, according to its 10-Q filing. There is also a $150 million put obligation on its 6.72% debentures coming up in September next year.
In addition, the company also has to deal with some pension liabilities. As of Dec. 31, 2002 the pension was underfunded by $587 million.
Ratings agencies weren't available for comment. Moody's Investors Service rates Solutia B3 with a negative outlook, and the senior unsecured debentures Caa3. Standard & Poor's Corp. rates Solutia's corporate credit rating B-, with a negative outlook.
ST. LOUIS -- Monsanto Co. (MON) will take a one-time charge for its portion of the polychlorinated biphenyls (PCB) litigation settlement, President and Chief Executive Hugh Grant said.
Speaking Thursday morning during a conference call following a call by Solutia Inc. (SOI) executives, Grant said that Monsanto is responsible for a $550 million pretax payment in the settlement. The payment will be recorded as a one-time charge to Monsanto's earnings at a date that hasn't been determined, but which will likely be this year, Grant said.
Shortly after Monsanto's payment is made, the company's insurance carriers will reimburse the company about $160 million pretax, Grant said. That will leave Monsanto with a payment of $390 million in the settlement, he said. The amount will be somewhat offset in future years by the tax effect of the settlement, Grant said.
As for funding Monsanto's share of the settlement, Chief Financial Officer Terry Crews said Monsanto will mainly use the cash it currently has from its cash flow this year. However, given the seasonality of Monsanto's cash flow, the company will probably have some short-term borrowings over a couple months to handle the payments, he said.
Monsanto remains committed to the stock buyback program it announced earlier in the year, Crews said.
Although Monsanto agreed with Solutia that the grounds for an appeal in the Abernathy case were strong, Monsanto thought it was best to settle that case and the Tolbert case "in order to remove future uncertainty for Monsanto," Grant said.
"This was by no means an easy decision to make but it was our decision," Grant later said. Monsanto faced a range of options in the PCB litigation and decided that a settlement was the best alternative given the potential liabilities that the company might have faced, he said.
Late Wednesday evening, Solutia , Monsanto , Pfizer Inc.'s (PFE) Pharmacia unit and the companies' commercial insurers announced that they had reached a cash settlement of $600 million with plaintiffs in the Abernathy and Tolbert cases. There was no admission of wrongdoing by any of the parties.
In addition to Monsanto's payment and the commercial insurance reimbursement, Solutia will pay $50 million for the settlement.
Pfizer will pay for community health initiatives for low-income residents in Anniston and Calhoun County in Alabama. Those initiatives are expected to cost more than $75 million over the next 20 years.
The Abernathy case is four consolidated lawsuits on behalf of 3,500 Anniston residents who claim that PCBs that were dumped in the area have lowered their property values and made them sick.
The Tolbert case involves about 15,300 plaintiffs in the Anniston area.
Happy investors pushed shares of Monsanto and Solutia up in Thursday morning trading. Monsanto's stock was recently trading at $26.31, up 16% or $3.62 a share, on volume of 3.l million shares. Average daily trading volume is 1.4 million shares.
Solutia's stock was recently trading at $3.52 a share, up 291% or $2.62, on volume of 13.3 million shares. Average daily trading volume is 1 million shares.
Monsanto executives reiterated during the conference call that, including the effect of Monsanto's $390 million portion of PCB litigation settlement, they expect to generate free cash flow of between $50 million and $100 million in this calendar year. That compares with the company's original forecast of between $350 million and $400 million. The original forecast didn't include the settlement.
The improvement in the company's outlook for cash flow this year stems from its capital expenditures likely being on the lower end of Monsanto's guidance of between $250 million and $300 million and improvements in working capital, Chief Financial Officer Crews said.
Monsanto executives reiterated that Solutia is responsible for its financial obligations, including post-retirement issues such as health-care. The settlement should put Solutia in a better position to address those factors, Monsanto Chief Executive Grant said.
When asked why Monsanto agreed that a settlement was a better alternative than bankruptcy for Solutia, Grant said the plan mitigated risk to Monsanto's shareholders. Protracted litigation involved an unknown outcome and the settlement is a known outcome, he said.
In addition, if Solutia went bankrupt and couldn't meet its financial obligations, and then Monsanto would be next in line to pay the bills, Crews said.
Of DOW JONES NEWSWIRES ST. LOUIS -- The Alabama PCB settlement announced late Wednesday allows all parties involved to move forward and it allows Solutia to address its other challenges, Chairman and Chief Executive John Hunter said.
Speaking Thursday during a conference call to discuss the settlement, Hunter said that it would have taken many years and drained the resources of Solutia and the Anniston, Ala., community if the parties would have continued battling.
That, in large part, is why Solutia wanted to settle the matter, Hunter said. He added, however, that there still isn't "substantial scientific evidence" that exposure to polychlorinated biphenyls (PCBs) causes health problems.
The settlement covers any punitive damages that Solutia might have incurred if the litigation continued, Hunter said.
Late Wednesday, Solutia, Monsanto Co. (MON), Pfizer Inc.'s (PFE) Pharmacia unit and the companies' commercial insurers announced that they had reached a cash settlement of $600 million with plaintiffs in the Abernathy and Tolbert cases. There was no admission of wrongdoing by any of the parties.
"We are relieved to have this litigation behind us because it removes an obstacle and changes the dynamics as we continue to work on other real issues, refinancing our bank facility, addressing our future bond maturities, pension obligations and legacy liabilities," Hunter said.
Monsanto will pay about $390 million of the $600 million settlement. Commercial insurance will pay about $160 million and Solutia will pay $50 million. Of that amount, Solutia will pay $25 million for the Abernathy case and $25 million in the Tolbert case. The company's first payment of $2.5 million for each case is due on Aug. 26, 2004.
Pfizer will pay for community health initiatives for low-income residents in Anniston and Calhoun County in Alabama. Those initiatives are expected to cost more than $75 million over the next 20 years.
The Abernathy case is four consolidated lawsuits on behalf of 3,500 Anniston residents who claim that PCBs that were dumped in the area have lowered their property values and made them sick.
The Tolbert case involves about 15,300 plaintiffs in the Anniston area.
Hunter noted that Solutia settled the Payton lawsuit, another PCB case, on Aug. 8 for about $5 million.
Solutia has agreed to issue to Monsanto warrants to purchase 10 million shares of Solutia common stock. The warrants can be exercised if there is a change of control at Solutia or if Solutia's stock price averages more than $10 a share over a 30-day period, Chief Financial Officer Robert Claussen said during the conference call. The strike price for the warrants is the average of the stock's closing prices of the five days prior to Wednesday.
The settlement doesn't reduce Solutia's financial obligations under the consent decree that was approved by a federal judge earlier this month, Chief Executive Hunter said. The settlement resolves the issues in Tolbert and Abernathy, he said.
Under the consent decree, Solutia has to submit a plan to remove PCBs from certain residential properties in Anniston to meet standards set by the Environmental Protection Agency.
Claussen reiterated during the call that Solutia took a $27 million pretax environmental charge, or $17 million after tax, to its second-quarter results in anticipation of the cleanup costs associated with the decree. The company doesn't expect to take any additional charges with regard to the consent decree, Claussen said.
The company's environmental remediation costs have averaged between $30 million and $40 million a year, he said.
With regard to the $5 million a year that Solutia will pay for 10 years for its portion of the settlement, Solutia will record in the third quarter the difference between the net present value of the $50 million over 10 years and Solutia's current accounting reserve for PCBs, Hunter said. That difference is about $30 million, he said.
That means that Solutia will book about $30 million in its third quarter to reflect the liability, Hunter said.
ST. LOUIS -- The Alabama PCB litigation settlement reached among Solutia Inc. (SOI) and other companies, insurance companies and plaintiffs puts Solutia in "a better position" to address the issues facing the specialty chemical maker, Solutia spokesman Glenn Ruskin told Dow Jones Newswires.
Late Wednesday evening, Solutia, Monsanto Co. (MON), Pfizer Inc.'s (PFE) Pharmacia unit and the companies' commercial insurers announced they had reached a cash settlement of $600 million with plaintiffs in the Abernathy and Tolbert cases. There was no admission of wrongdoing by any of the companies.
The PCB litigation has "been a burden and Solutia is relieved to have this obstacle removed," Ruskin said. The settlement puts Solutia "in a better position" to address such issues as upcoming bond maturities and pension fund obligations, he said.
Solutia, in its 10-Q filed last week, said it's considering all of its alternatives, including reorganization under Chapter 11 bankruptcy, in addressing future liquidity needs and litigation liabilities.
The settlement resolves Solutia's major PCB litigation.
The settlement will be equally divided between the Abernathy and Tolbert lawsuits, Ruskin said. Monsanto and the insurers will deposit $75 million in Alabama state court for the Abernathy case and $75 million in federal court for the Tolbert case by Aug. 26, he said. Another $200 million will be deposited in each court no later than seven days from the day that the parties sign the agreement, he said.
How the $275 million in each court is disbursed will be decided on Aug. 26, the day that all parties are expected to enter into a final agreement and approval by the court is given, Ruskin said.
In the settlement, Solutia will pay a total of $50 million in equal installments, or $25 million in Abernathy and $25 million in Tolbert, over 10 years. The company's first payment, of $2.5 million to each court, is due on Aug. 26, 2004, Ruskin said.
Monsanto will pay about $390 million and commercial insurance will pay about $160 million. Pfizer will be responsible for paying for community health initiatives for low-income residents of Anniston, Ala., and Calhoun County. Those initiatives should cost more than $75 million over the next 20 years.
Monsanto felt "it was in our best interest" for the company and its shareholders to get a final resolution to litigation "that had been a big question mark over us for months, if not years," said Monsanto spokeswoman Lori Fisher.
Monsanto adjusted some of its financial forecasts after the announcement of the settlement. Including the effect of the settlement, the company expects to generate free cash flow this calendar year of between $50 million and $100 million. The company's previous forecast was $350 million to $400 million.
Solutia has agreed to issue to Monsanto warrants to purchase 10 million shares of Solutia common stock. The warrants can be exercised if there is a change of control at Solutia or if Solutia stock reaches $10 a share. The strike price is the average of the stock's closing prices of the five days prior to Wednesday. The stock closed Wednesday at 90 cents a share.
The warrants are "vehicles" for Monsanto if there is a change of control or if Solutia becomes profitable again, Ruskin said. The warrants could help Monsanto "recoup some of their money" that the company is paying in the settlement, he said.
Solutia was spun off from Monsanto in September 1997.
Abernathy is four consolidated lawsuits on behalf of 3,500 Anniston residents who claim that PCBs that were dumped in the area have lowered their property values and made them sick.
The residents sued Solutia, the Pharmacia Corp. that Pfizer acquired earlier this year, and the Monsanto that existed before it merged with what was Pharmacia & Upjohn Inc. in March 2000 to form Pharmacia. Pharmacia sold 15% of its stake in the current Monsanto in October 2000 and its remaining stake in August 2002.
Tolbert versus Monsanto is another Anniston PCB case.
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