ABB's turnaround men

17 January 2003

Plaintiffs may yet reject the settlement. But the risk seems low. And the deal looks good for the SwissSwedish engineer. ABB securities have discounted this. If they are to get another leg up, the group must sell assets and generate cash.

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ABB has agreed with lawyers of its asbestos claimants upon a prepackaged Chapter 11 bankruptcy for its asbestostainted US subsidiary Combustion Engineering.

Under the agreement, plaintiffs will have claim over the assets of Combustion Engineering, worth $812m at September 30, including roughly $500m of cash and $250m of receivables. ABB will also pay the claimants $250m in cash between 2004 and 2006 and give them $50m of ABB stock at prices prevailing during the last quarter of 2002. On top of this, ABB may pay a further $100m between 2006 and 2009 – but only if its operating profit margin has hit predetermined levels.

ABB needs the agreement of 75% of claimants for the plan to succeed. It said it was confident of achieving this but declined to reveal the percentage of claimants represented by the lawyers who agreed to its proposal. If the plan succeeds, plaintiffs will lose any legal claim over ABB's assets. If claimants reject the plan, ABB will put CE into a regular Chapter 11 bankruptcy.

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