Asbestos Costs May Drive USG To Bankruptcy
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The USG Corporation, a maker of wallboard, said yesterday that it might file for Chapter 11 bankruptcy protection as the cost of legal settlements with victims of asbestos-related diseases rises. The company’s disclosure came after an inaccurate report on Friday that it had already filed for bankruptcy protection. While the report of the company’s bankruptcy filing was incorrect, it touched off a sell-off in USG shares and prompted the statement yesterday, which in turn elicited a chorus on Wall Street that such a filing seemed inevitable. Among the USG shareholders whose investments have been cut nearly in half since the inaccurate report is Warren E. Buffett, who has a reputation for acting early and not wrongly. Though seven companies that are defendants in asbestos lawsuits have filed for bankruptcy protection since the start of 2000, USG, based in Chicago, did not suggest the possibility until yesterday. In its statement, the company said it was considering filing for bankruptcy protection while looking for new financing and working to encourage passage of federal legislation changing the way victims of asbestos-related diseases are compensated. ”We are making progress on the legislative front, but the process is not moving as quickly as we hoped,” William C. Foote, the chairman of the company, said in the statement. Plaintiffs’ lawyers have increasingly singled out USG as other companies have gone into bankruptcy court, he added. A subsidiary, U.S. Gypsum, paid $100 million in 1999 and $162 million last year and expects to pay $275 million this year, the company said. The path to bankruptcy seems inevitable because of, among other reasons, ”the fact that it’s in their jargon right now,” said Wesley E. Chinn, an analyst for Standard & Poor’s. ”As soon as we see ‘bankruptcy,’ it’s like, ‘Uh-oh.’ ” One factor holding bankruptcy at bay has been the company’s stock price, which has been relatively high compared with the stocks of other companies that have filed for protection because of asbestos litigation, said Matthew G. Moyer, an analyst for A. G. Edwards. ”The only thing that’s stopped them from filing is erasing all the shareholder wealth,” Mr. Moyer said. Now, ”that’s been done for you.” And a lot of that happened on Friday afternoon. Six months ago, when Mr. Buffett’s company, Berkshire Hathaway, disclosed that it had bought 6.5 million shares, or 14.98 percent of the company, the shares soared $4.44 in a day, to $19.38. By the close of trading on Thursday, they had fallen to $8.36, still well above the $2 to $3 that companies like W. R. Grace had traded at until they filed for bankruptcy protection. As volume in the stock’s trading grew heavy on Friday afternoon, a reporter for the Reuters news service searched a database for the reason and found a bankruptcy filing from 1993, said Nancy Bobrowitz, spokeswoman for Reuters. At 1:23 p.m., Reuters issued a one-line statement: ”USG Files for Chapter 11 Bankruptcy — Court Filing.” Four minutes later, the New York Stock Exchange halted trading in USG stock at $6.93, down from its open at $9.41, according to a spokeswoman for the exchange. The reason was a trade imbalance, too many orders on one side, but that was changed to news dissemination, indicating a statement from the company was most likely forthcoming. |