James Hardie, Unions Sign Asbestos Compensation Pact
Date: 22-Dec-04
Country: AUSTRALIA
Author: Victoria Tait
James Hardie Industries N.V., which once made wallboard and other products using asbestos, said initial funding would be based on insurance estimates of present and future liabilities at A$1.5 billion ($1.1 billion) in today's dollars.
The estimate will be updated every year, and the fund will cover at least 40 years and possibly 70.
"This is a momentous day," said asbestosis sufferer and victims' association president Bernie Banton, holding back tears at a news conference to announce the deal.
Hardie is the biggest maker of home siding in the United States, where it earned about 85 percent of its sales last year of nearly $1 billion.
It is listed in Australia but has moved its headquarters to the Netherlands. It said the new fund would contain a buffer of at least A$239 million against future shortfalls.
Annual payments would be capped at 35 percent of net operating cash flow until 2012, when the cap could fall, it said.
Acting Chief Financial Officer Russell Chenu said the payout from fiscal 2004 cashflow would be capped at A$73 million.
Hardie, which ousted its top two executives after an inquiry found it had broken the corporations law and massively underfunded a previous compensation fund, hailed the accord.
"From a chairman's standpoint, I believe the heads of agreement provides for a funding arrangement that is affordable, sensible and workable," Hardie Chairman Meredith Hellicar told reporters.
She said Hardie hoped to put a plan to shareholders by June.
The deal sparked cheers from more than 50 construction workers outside a Sydney office block waving trade union flags.
Banton, who breathes with the aid of an air hose, said: "There is still a long way to go, but we are getting there."
The head of Australia's main labour body, the Australian Council of Trade Unions, said A$1.5 billion may not be enough.
"We do not know how many people will be affected by asbestos-related diseases in the years to come," council Secretary Greg Combet told reporters.
LONG-TERM FUND
The funding row broke in October 2003, when a compensation fund set up by James Hardie in 2001 with A$293 million said it was running out of money. A state government inquiry followed, sparking a public relations nightmare for the company.
The inquiry found in September this year that Hardie broke Australia's Corporations Law when it misled the public about money set aside for the fund. The fund was later found to be up to seven times too small.
Australia's securities watchdog is investigating both Hardie's former chief executive and former chief financial officer for misleading investors and the general public.
The parties hope to move from the initial agreement, which sets out key terms of a plan to pay victims of mesothelioma and other diseases caused by breathing in asbestos fibres, to a legally binding one.
Investors have been eager for Hardie to resolve the funding issue so it can focus on its position in the lucrative US home siding market.
Chenu said the plan would allow Hardie to continue to earmark about $40 million for building a new plant once a year in the United States for the foreseeable future. It has just commissioned a new plant in Reno, Nevada.
Hardie stock rose as much as 8 percent to a one-month high of A$6.69, before ending up 6 percent at A$6.60. The close is below its peak of A$7.81 in Oct. 2003 before funding concerns emerged, but well above a near three-year low of A$4.95 in August.
Analysts have valued the stock at just under A$9 a share without the asbestos woes.
"The fact that we've got a settlement gives the market some relief, and you would expect the stock to pick up more towards fair value now that the overhang is out of the stock," said David Halliday, associate director of Macquarie Equities.
Funds are due to start flowing by mid-2005.
(US$1=A$1.32)
(Additional reporting by Michael Perry and Dani
