Sealed Air to Pay $846 Million in Asbestos Settlement

Sealed Air Corp. (SEE) Friday said it agreed to resolve all asbestos-related claims for about $846 million, raising hopes that the wave of asbestos suits that has crippled many of the biggest names in U.S. manufacturing may be coming to an end.

The cash and stock agreement comes on the heels of an out-of-court asbestos-related settlement earlier on Friday by German firm Fresenius Medical Care AG (FMS), which boosted European stocks. Shares in Sealed Air, the maker of Bubble Wrap, rose by half, while the stock prices in other U.S. companies facing asbestos suits also jumped.

"This is a benchmark for future asbestos settlements and helps to lift some of the litigation clouds hanging over many companies facing similar suits," said David Kerans, an analyst from Argus Research.

An avalanche of asbestos personal injury claims has cost more than $54 billion in settlements so far and driven more than 60 U.S. companies into bankruptcy. Asbestos litigation could cost U.S. companies more than $200 billion, several research firms have estimated.

The pending settlement is expected to be approved no later than Dec. 6, three days before Sealed Air was due in court for an asbestos-related lawsuit.

The deal, which also comes amid investor hopes that a Republican-controlled U.S. Congress would pass legislation reining in an explosion in asbestos lawsuits against corporations, raises expectations that other settlements will be forthcoming.

Dan Khoshaba, an analyst at Deutsche Bank-North America, said the settlement is good news for other companies facing asbestos claims.

"There has been momentum over the past six months for dealing with this egregious asbestos situation," said Khoshaba.

"Plaintiffs' attorneys are being more reasonable about settling now that we have a Republican Congress."

Asbestos was widely used as insulation and as a fire retardant, but scientists found in the 1960s and 1970s that the inhalation of its fibers could cause lung cancer and other diseases.

Saddle Brook, New Jersey-based Sealed Air said that it would pay $512.5 million in cash and 9 million shares of stock, which are currently worth more than $330 million.

"It puts a cap on their liability and it is not a significant amount of money for a company that generates $300 million of free cash flow annually," Khoshaba said about the settlement.

The agreement would settle all current and future asbestos-related claims and pending fraudulent transfer claims made in connection with Sealed Air's 1998 acquisition of the Cryovac packaging business from bankrupt W.R. Grace & Co.

Sealed Air said it will not seek indemnity from Grace for payments made under this agreement.

"This agreement in principle provides Sealed Air with finality and certainty as we put the Grace-related issues behind us," said Chief Executive William Hickey.

Sealed Air shares topped the winner's list on the New York Stock Exchange and claimed the second spot on the most actively traded list, gaining 50 percent, or $12.27, to trade at $36.75 at midday. More than 5.8 million shares changed hands by 11:45 a.m.

Other companies with asbestos exposure were also big gainers on Friday.

Shares of Fresenius were up $3.89, or nearly 35 percent, to $15.10. Shares in McDermott International Inc. (MDR) were up 73 cents, or more than 29 percent, at $3.22, while shares in Halliburton Co. (HAL) were up $1.73, or 9 percent, at $20.92.

Shares of packaging and forest product companies also benefited from the news. Georgia-Pacific Corp.(GP) 's stock was up $3.16, or more than 17 percent, at $20.73, and USG Corp. (USG) shares rose $1.04, or more than 15 percent, to $7.85. Crown Cork & Seal Co. Inc. (CCK) shares were up 69 cents, or more than 8 percent, at $8.64. Shares of engineering firm ABB (ABB) were up 27 cents, or more than 8 percent, at $3.40.

Sealed Air said it is still figuring out how to account for the settlement and does not expect any of the settlement to be covered by its insurance.

Dec. 21, Sealed Air will start making the cash payment plus interest at a 5.5 percent annual rate.

The settlement must be approved by Sealed Air's board, and the Asbestos Personal Injury and Asbestos Property Damage Creditors Committees in Grace's bankruptcy proceeding.

The settlement calls for all asbestos-related claims against Sealed Air to be held in a trust that will be set up as part of Grace's plan of reorganization. This trust will make payments to asbestos claimants on behalf of Grace, the company said.

The agreement also provides for full protection of Sealed Air from all claims filed against the company by Fresenius Medical Care AG, which bought a unit of Grace in 1996.