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ABB asbestos settlement close

Asbestos was used as firecladding until the 1970s

(Keystone Archive)

An American bankruptcy court has approved Swiss-Swedish engineering giant ABB's proposed $1.2 billion (SFr1.59 billion) settlement of its asbestos claims.

The decision, which is subject to additional information being provided, could pave the way for the multinational to clear up its financial woes.

ABB spokesman Wolfram Eberhardt told swissinfo the company was satisfied with the decision and that its legal team was consulting Judge Judith Fitzgerald's ruling, which is over 60 pages long.

"We are very pleased with the court's order and look forward to a final decision from the district judge in the very near future," he said.

The settlement has been approved subject to additional findings of fact with respect to two subsidiaries.

Eberhardt said the company was confident it could answer the court's request promptly.

Part of the information requested by the judge concerns the firm's Lummus Global unit.

It is considered vital for ABB that this unit be included in the settlement. It is part of the firm's oil, gas and petrochemical division, which could be sold to one of several bidders in the near future.

Clear path?

The asbestos ruling clears the way for CEO Jürgen Dormann to implement his rescue plans for ABB, and removes a key obstacle blocking the troubled Swiss-Swedish firm's recovery.

Chris Burger from Switzerland's Vontobel bank told swissinfo that the decision means ABB management should now be able focus on the business.

"The asbestos issue doesn't have a direct impact on the business's operations, but it certainly [has] created uncertainty," Burger said.

"Once that's out of the way, they can focus on their core business,"

Burger said the asbestos problem was only one of several issues threatening the group.

"Debt is a far bigger problem than asbestos," Burger said.

"They certainly haven't achieved a turnaround yet, although they are on the right path," he added.

Steadying the ship

Dormann plans to cut the firm's debts to $4 billion by 2005, and has embarked on a drastic restructuring and cost savings programme.

ABB is slashing its workforce from over 140,000 to around 100,000, and this year plans to sell its Oil, Gas and Petrochemicals division.

On Tuesday the company reported a first-quarter loss of $45 million - three times the $15 million loss that analysts had predicted.

Although sales were up, operating income was down 66 per cent from the year before.

Despite difficult operating conditions, it was the asbestos case that represented the group's most unpredictable threat.

Market concern about the case has been a key reason for the company's plunging stock price, as well as a recent decision by ratings agency Standard and Poor's to cut the company's bond rating to "junk" status.

Last year, ABB's stocks fell from a high of around SFr15 to an all-time low of SFr1.21, although in recent days they have risen to around SFr4.80 amid anticipation of a positive outcome in the court.

Asbestos bill

ABB originally offered $1.1 billion for a settlement, involving $300 million in cash along with the assets of Combustion Engineering, which would be declared bankrupt and liquidated.

In January, that offer was increased by $100 million.The final bill could even reach $1.3 billion after legal fees and expenses are added.

The firm said its bankruptcy deal had won the approval of 103,000 claimants. Fewer than 1,000 have reportedly opposed the offer, saying it was insufficient.

ABB will now be hoping the decision will allow it to draw a line under the asbestos problem, which many view as symptomatic of the underlying causes of the firm's decline in recent years.

The future?

The company purchased Combustion Engineering in 1990 during a period of rapid expansion, when the Swiss-Swedish company entertained dreams of becoming a global giant.

For several years, that goal appeared to be holding true. ABB was often lauded as Europe's answer to General Electric and was held up as a business school model of how to manage a modern corporation.

However, falling stock markets and rising debts created by a series of bad purchases have left the firm severely overstretched, and forced it to scale back.

Once it finalises its planned assets sales and restructuring, ABB will be a far smaller, and perhaps more humble firm than in the past.

swissinfo, Jacob Greber

Key facts

ABB purchased Combustion Engineering, a boilermaker, in 1990 as part of its expansion drive.
Over 100,000 plaintiffs joined the asbestos class-action suit against Combustion Engineering, including a number of former employees ill with cancer.
ABB proposed a settlement worth $1.2 billion, $350 million in cash plus $50 million in ABB stock and the assets of its subsidiary.
Around 103,000 plaintiffs have accepted the deal, while 1,000 others are still holding out.

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