One thing stands out about the companies that have entered bankruptcy protection to fend off asbestos lawsuits.
Unlike other companies seeking protection under Chapter 11 of the U.S. Bankruptcy Code, they were stripped of control over their own destinies. For companies with asbestos liability, power has moved to trusts that were set up to settle the billions of dollars in claims that drove the companies to bankruptcy in the first place.
In several cases, the asbestos trust became a company's majority, or even sole, shareholder, living off dividends and other investments. But to pay asbestos litigants, the trusts sometimes have sold companies outright.
Commercial creditors recovered a portion of their losses. But shareholders often received nothing. As trusts sold off divisions, some companies downsized. Others stayed whole but found new owners.
The fate of other asbestos bankruptcies offers a glimpse of what may await Armstrong World Industries Inc., the largest subsidiary of Armstrong Holdings Inc., Manor Township.
"Certainly what you're saying about some of the other companies is accurate," said Stan Steinreich, Armstrong's spokesman. But he did not believe the examples set a precedent.
"What will occur in our case is this is way too early to tell," he said. "We're two weeks into the Chapter 11 process. There has not been a full court hearing. Creditors' committees have not been formed. We need to give that process some time to set up before there's any talk on how we'd reorganize."
The 140-year-old manufacturer of floor and ceiling products filed for Chapter 11 bankruptcy protection Dec. 6, citing the cost of its asbestos liability, estimated at $800,000 to $1.4 billion through 2006. Armstrong stopped making asbestos products 30 years ago.
Bankruptcy will protect Armstrong from those claims. But bankruptcy presages a shift in corporate ownership to the plaintiffs.
"If management has been well counseled and has sort of seen the light - that the only issue is to talk about the orderly transfer of ownership from existing shareholders to an asbestos trust and deliver the bulk of the value of the company to the trust - it'll be short and sweet . a two-year process," said Peter Chapman, president of Bankruptcy Creditors' Service Inc., Trenton, N.J.
He said the hardest part of any asbestos bankruptcy is valuing the asbestos liability, which determines the cash needs of the asbestos trust.
"In the bulk of the cases, it's resolved by consensus," Chapman said. "The debtors and the asbestos committee agree on the numbers, and everybody walks away disappointed. . In some cases, it gets litigated."
The bankruptcy court will set a deadline for filing claims. For Johns Manville Corp., Denver, Colo., the last claim is expected in 2049, according to spokesman John Cummings.
What follows is a look at six of the 24 asbestos bankruptcies that preceded Armstrong's.
The first company to enter Chapter 11 bankruptcy protection because of asbestos liability was UNR Industries Inc. It filed on July 29, 1982.
Eight years later, the UNR Asbestos-Disease Claims Trust was formed. It quickly began selling off the holding company's many subsidiaries to raise cash to pay asbestos claims.
All that remains today is Rohn Industries Inc., Peoria, Ill., which builds outdoor antennas, communications towers and other structures for the telecommunications industry. It employs about 1,000 people and expects sales of $235 million in 2000, said CFO Jim Hurley.
The asbestos trust owns slightly more than 55 percent of Rohn's stock and supplies three trustees to the company's seven-member board, said Hurley. One of the three is the board's chairman.
"That's a good thing. That's not a bad thing," Hurley said, noting that trustees were not always board members. "What happened in the past . the board of directors would approve something and the trust would say no."
Hurley has been with Rohn only six months and could not recall any examples of friction. But tension arose over acquisitions, capital expansions and similar activities, he said, citing discussions with the company's president.
On the block
Once the bluest of blue chip companies, Johns Manville Corp. was the second company driven into bankruptcy protection by asbestos.
Based in Denver, Colo., the company sought Chapter 11 protection in August 1982. It emerged six years later - with 76 percent of its shares owned by the Manville Personal Injury Settlement Trust.
In the early 1990s, the trust was funded as the company sold off bits and pieces, culminating in the sale in 1996 of Riverwood International, a paper and packaging division that made up half the company, said John Cummings, a company spokesman. The sale earned $1 billion for shareholders.
By then, the 30,000-person company had shrunk to 7,500 workers, Cummings said.
"I remember when I joined the company in the early 1990s, talking to some of the early management, you could tell they were very much challenged about how ultimately you were going to solve a very complex problem of generating enough business and value to satisfy the trust at the same time . doing all the normal things companies do," Cummings said.
Only in the last four years has the company started growing again, Cummings said. It currently employs nearly 10,000 and makes insulation, roofing and other products for the construction industry.
But to keep up with asbestos claims, the trust is seeking to liquidate its ownership stake. The trust earns more than $27 million a year from dividends, but must pay out roughly $150 million a year to asbestos plaintiffs, Cummings said.
"We have a situation that we are trying to support to allow the trust to exit its ownership of the company," Cummings said. "And it is just a consequence of that structure that . when that day comes - and one way or another it has to come - it's most likely that the entire company would end up getting purchased."
In the waiting room
Raytech Corp., Shelton, Conn., filed for Chapter 11 bankruptcy in March 1989, one month after its chief subsidiary, Raymark Industries, filed.
Raytech had hoped a holding company structure, adopted in 1986, would shield its other businesses from Raymark's asbestos liability.
But courts disagreed. The company awaits final approval of its reorganization plan, expected in March, said CFO John Devlin.
The plan hands over 90 percent of the company's stock to an asbestos trust. The court set its liability at $7.2 billion.
Devlin said a sale of the company was not under discussion, but he seemed resigned to the possibility.
"Historically, all these trusts have monetized their investments," he said.
Once part of the Jim Walter Co., a diversified construction firm active in home building, Tampa Bay, Fla.-based Celotex Corp. filed for Chapter 11 bankruptcy protection in October 1990.
Today, Celotex's sole owner is the Asbestos Settlement Trust, which last year decided to split the company up and sell the pieces.
So far, about 70 percent of the company has found a new home, said Paul Griscti, a spokesman for the company.
BPB, a British company, bought the ceiling products and gypsum wall board division. CertainTeed Corp., Valley Forge, bought roofing products. Only Celotex's insulation and fiberboard divisions remain.
The buyers have preserved manufacturing jobs, Griscti said, but about 300 administrative jobs in Tampa have been cut.
Coming up tulips
Eagle-Picher Holdings Inc., Cincinnati, also ended up wholly owned by its asbestos trust. The former Fortune 500 company filed for bankruptcy protection in January 1991, but re-emerged relatively quickly in 1996.
However, the trust decided to sell the company. It conducted an auction and found a buyer in Dutch conglomerate Granaria Holdings. The sale raised $700 million.
Eagle-Picher has retained its name, but is now a privately held subsidiary of another company.
"The company's operations were really not affected by the bankruptcy," said David Krall, senior vice president, general counsel and secretary. "It was the common shareholders who . basically lost their investment in the company."
Existing stock was canceled to make way for the trust's ownership; the original shareholders received nothing, Krall said.
"We wished very much that it had been a small subsidiary that sold asbestos products instead of the parent company," he said.
"The most that the plaintiffs could have done is take the net worth of that subsidiary rather than the net worth of the entire company," he said.
Commercial creditors also fared poorly, said Chapman, of Bankruptcy Creditors' Service.
They balked after asbestos creditors and the company settled on liability of $1.5 billion, Chapman said. Commercial creditors had estimated the liability at $900 million.
In the ensuing court battle, asbestos creditors boosted their claims to $3.5 billion, Chapman said. The judge ultimately settled on $2.5 billion.
That meant there was even less money left over for the commercial creditors.