Combustion Engineering, the United States subsidiary of ABB, has filed for Chapter 11 bankruptcy protection.This content was published on February 18, 2003 - 11:07
The move, which is expected to resolve the group's potentially crippling asbestos liability, pushed ABB shares up by 20 per cent on Monday.
The debt-laden group Swiss-Swedish engineering group, based in Zurich, said its offer to settle asbestos claims had won approval of representatives of 103,000 present and future claimants.
It added that fewer than 1,000 prospective claimants had opposed the offer, under which the firm has set aside provisions of $1.2 billion (SFr1.64 billion).
The move is thought likely to put a cap on ABB's asbestos liabilities, and drove the share price up by almost 20 per cent on Monday to SFr4.
Voting on ABB's offer was due to continue until February 19, but the firm said it brought forward its filing for Chapter 11 to head off any last-minute attempts by plaintiffs to force Combustion Engineering into involuntary bankruptcy.
Chapter 11 affords protection from creditors while the firm is wound up, and administrators then decide how much creditors will receive.
ABB had originally put $1.1 billion on the table for a settlement, made up of $300 million in cash as well as the assets of Combustion Engineering.
It upped the offer in January by $100 million in a bid to secure agreement from plaintiffs lawyers.
Combustion's asbestos liabilities had threatened to drive the entire cash-strapped group under.
ABB is currently battling with a debt mountain, and is in the process of selling off assets to refocus its activities on power and automation technologies.
The potential consequences of the asbestos issue prompted ratings agency Standard and Poor's to cut ABB's bond rating to "junk" status in January.
The company last year hit the negative headlines after announcing a record loss of $691 million for 2001.
Its public image was not helped by a dispute with two of its former Swedish chief executives, Percy Barnevik and Göran Lindahl, over what were considered exaggerated retirement benefits.
The group announced a drastic restructuring and cost savings programme in November when it cut its earnings targets for the next three years and said it aimed to reduce its debts to $4 billion by 2005.
It also confirmed it would divest its Oil, Gas and Petrochemicals division, as well as Building Systems this year.
ABB is selling assets to cut a $9 billion mountain of debt - on an equity base of $1.8 billion - at the end of September.
swissinfo with agencies
ABB said its offer had been approved by lawyers representing 103,000 plaintiffs.
It added that fewer than 1,000 claimants opposed the deal.
The group's shares jumped by nearly 20 per cent on the news.
Under the agreement a trust will be set up to handle the asbestos claims.
ABB bought Combustion Engineering in 1990 at a time when the group was in an acquisition phase.
Combustion Engineering had been using asbestos in the production of boilers before ABB made the purchase.
The plaintiffs are people who claim to have been exposed to asbestos particles, which can cause a lethal illness that takes up to 30 years to become evident.
ABB transferred the activities of Combustion Engineering to Alstom in 2000 when it sold its stake in a power joint venture for €1.25 billion.
ABB kept the liabilities.
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