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As
Retooled Asbestos Legislation Emerges, Wall Street’s Thumbs-Up Confirms
the Deal is Good for Companies, Bad for Victims
Even
With Ultimate Prospects of S. 852 Uncertain, the Legislation Has Already
Spurred $2.2 Billion in Stock Market Gains for Asbestos Firms
Public Citizen
June 22, 2005
http://www.citizen.org/pressroom/release.cfm?ID=1973
WASHINGTON, D.C. – When Congress took up a bill in April to create a
national trust fund for compensating hundreds of thousands of victims of
asbestos exposure, Public Citizen and other groups warned the legislation
would be a boon for asbestos companies and other firms, at the expense of
victims.
Wall
Street has now weighed in with its review of the deal, and the stock
market agrees: The companies win. As a group, major asbestos firms have
already seen an average 22.8 percent gain in their stock prices as the
bill, S. 852, has been introduced and then passed out of the Senate
Judiciary Committee, an analysis by Public Citizen shows. The stock price
gains translate into a $2.2 billion increase in market value, or market
capitalization, for the firms.
The
Judiciary Committee approved the bill, with amendments, on May 26. The
committee report on the bill is expected to be released in coming days.
Wall
Street likes the asbestos legislation because under terms of the bill,
asbestos companies and other firms would reap significant windfalls. That
is because their liability to victims under the proposed privately funded,
publicly run national trust fund would be substantially less than
otherwise expected.
"With the stock prices of asbestos firms rising with each step in the
legislative process, investors are clearly signaling that the bill is a
big winner for the companies," said Joan Claybrook, president of Public
Citizen. "But when the companies win, the victims lose, because victim
compensation depends directly on how much the companies contribute. With
hundreds of thousands of people likely to die because the industry covered
up the dangers of asbestos exposure for so long, this devastating human
toll should be the priority of Congress."
S.
852 proposes to create a $140 billion fund to compensate workers exposed
to asbestos, but there is concern the fund may go bust because it will not
collect enough to pay all benefits.
"What we need is a system that doesn’t impose some artificial limit on
corporate liability but instead compensates all victims fairly, according
to the severity of their injuries," said Frank Clemente, director of
Public Citizen’s Congress Watch division. "S. 852 is all about holding
down corporate liability but not nearly enough about helping people."
The
asbestos companies’ run-up in stock prices began on April 12, when Sen.
Arlen Specter (R-Pa.), the bill’s chief sponsor, appeared at a news
conference in the Senate’s radio and TV gallery to discuss the USA PATRIOT
Act. The questions, though, quickly turned to the asbestos legislation he
had been developing. "I think," Specter said, "we are very close to a
deal."
Within hours, stock prices of asbestos-related companies surged. The bill
was introduced April 19, and there were further increases around the
Judiciary Committee’s May 26 approval.
An
examination of stock price movements for eight leading asbestos-related
companies from April 11 (the day before Specter’s announcement) through
June 17 shows:
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Although firms have not benefited uniformly, as a group there have been
strong gains. (Figure 1). Higher stock prices often translate into higher
compensation for corporate executives, through stock options and incentive
pay.
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One
company, Owens Corning, saw its value grow by 65.6 percent. Other
companies experiencing significant gains: USG Corp. (33.7 percent), W.R.
Grace & Co. (22.3 percent) and McDermott (18.7 percent). (Figure 2)
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The
$2.2 billion gain in market capitalization represents a 10.1 percent
increase in an approximately two-month (67 day) period. Expressed on an
annual basis, the growth is 68.9 percent. By comparison, for 2005, the New
York Stock Exchange composite index is up 0.89 percent.
If
prospects for enactment of S. 852 brighten, further stock price increases
are likely. The asbestos firms benefit because their contributions to the
trust fund proposed to be established under S. 852 would be substantially
less than payments they would otherwise be expected to make to set up
their own trust funds to compensate victims. For example, seven asbestos
firms will collectively realize an estimated 73.6 percent reduction in
their liabilities, from $18 billion to $4.7 billion (Figure 3). Some of
the biggest winners include W.R. Grace & Co., whose liability is estimated
to fall 86.9 percent, from $3.2 billion to only $418 million, and USG
Corp., whose liability is estimated to fall 80.4 percent, from $4.1
billion to just $797 million.
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Last
month, Public Citizen released a report on the asbestos legislation
showing that under the guise of providing aid to victims of
asbestos-related illnesses, a small group of companies has spent tens of
millions of dollars to successfully lobby for relief from asbestos
liability worth tens of billions of dollars.
That
success in protecting their corporate interests, however, will sharply
reduce the funds under the legislation that will be available to asbestos
victims, the report found. An estimated 10,000 people died of
asbestos-related diseases in 2003 alone. Because decades can elapse
between exposure and manifestation of symptoms, experts predict the peak
for asbestos-related diseases will not be reached until 2018. Disease
projections vary widely, ranging from 750,000 to 2.6 million future claims
of sickness and death.
The
big winners under the legislation include a handful of Fortune 500
companies – Dow Chemical, Ford, General Electric, General Motors,
Honeywell, Pfizer and Viacom – and at least 10 asbestos makers that have
filed for bankruptcy. Public Citizen’s stock price analysis covers most of
those asbestos firms. (It omits the Fortune 500 companies because their
operations are more varied, and hence their stock prices are not as
directly influenced by the asbestos legislation.)
[1] This average is not weighted by market capitalization.
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POSTED JUNE 23, 2005 ***
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