Monsanto, Solutia shares soar on settlement

posted on:
August 21, 2003

author:
Carey Gillam

category:
Environmental

KANSAS CITY, Mo., Aug. 21 (Reuters) – Shares of Monsanto Co. (MON) and Solutia Inc. (SOI) shot higher on Thursday as investors applauded a $675 million settlement of long-running litigation that had threatened bankruptcy for Solutia and extensive liabilities for Monsanto. Solutia shares were the largest gainers on the New York Stock Exchange, up more than 400 percent, while Monsanto climbed more than 16 percent to a 12-month high. The settlement, announced Wednesday, effectively ends the cases of 20,000 Alabama residents who alleged their health and homes were ruined by PCB contamination caused by Monsanto. Analysts said it dispels a cloud hanging over the companies and opens the door for new investors. “The removal of this issue has opened the stock up,” said Buckingham Research analyst John Roberts. “This is an issue that many people looked at as black and white….if you have (the lawsuits) we don’t want to touch your stock. Investors who were out of the stock, today they’re going in.” Both Merrill Lynch and Banc of America on Thursday raised their ratings on Monsanto to “buy” from “neutral” on the news, and UBS raised its rating on Solutia to “buy” from “neutral”. The settlement calls for Monsanto to pay $550 million, while Solutia will be responsible for $50 million. The Pharmacia unit of Pfizer, Inc. (PFE) will be responsible for community health initiatives over 20 years that are valued at more than $75 million. Monsanto, Solutia and Pharmacia trace their roots back to the former Monsanto conglomerate that operated a plant in Anniston, Alabama, that for 40 years manufactured polychlorinated biphenyls, or PCBs. Monsanto stopped making the PCBs in the 1970s before they were found to be dangerous and were banned. Plaintiffs claimed severe property and health damage and said many children suffered health problems because of the PCBs. Solutia last week warned that it was on the verge of filing for bankruptcy, a scenario that would have left Monsanto shouldering not only the litigation burden but also other liabilities that include post-retirement benefits for Solutia employees who were once part of Monsanto. “This was by no means an easy decision to make but … we believe we chose the best alternative given the potential liability Monsanto could have faced,” said Monsanto CEO Hugh Grant in a conference call Thursday. Monsanto expects to receive about $160 million in insurance reimbursement and plans to cover the remainder of its portion of the settlement with cash and some short-term borrowings, said chief financial officer Terry Crews. Crews said the company will take a one-time charge, likely by the end of this fiscal year, to reflect the settlement. Crews and Grant acknowledged Monsanto could inherit further liabilities if Solutia does not regain its financial footing. Plaintiffs’ attorney Jere Beasley said that Solutia remains obligated to cover long-term clean-up and remediation costs in Anniston involving thousands of residential and business properties. Those costs could total far more than $50 million, and could become Monsanto’s responsibility if Solutia fails, he said. In late trading, Solutia shares were up $2.94 or 327 percent at $3.84, and Monsanto shares were up $1.24 or 5.5 percent at $23.93.

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