Houston-based Halliburton Co. announced on Monday that it had consummated an innovative $5.1 billion settlement with asbestos claimants.
Halliburton became exposed to about 400,000 asbestos claims through its acquisition of Dresser Industries Inc. in 1998, which was a deal that former Halliburton CEO and current U.S. Vice President Dick Cheney promoted. The claims were asserted against a former Dresser subsidiary, Harbison-Walker Refractories.
The settlement allows two large units of Halliburton to emerge from chapter 11 cases and opens the door for Halliburton to sell its Kellogg Brown & Root (“KBR”) construction and government-contracting unit. The KBR has been the subject of considerable scrutiny this past year over the unit’s handling of a $10 billion contract to provide support services for the military in Iraq.
As with many companies, the liabilty represented by the asbestos claims has been a huge monkey on Halliburton’s back — Halliburton has booked more than $3 billion in asbestos-related charges since 2002. The settlement allows Halliburton to take advantage of the current favorable market for the oil field services industry that is based on strong demand for such services from exploration and production companies. In anticipation of the settlement, Halliburton’s share price has surged by about 25% over the past quarter, closing yesterday at $38.02.
Under its innovative chapter 11 strategy, Halliburton effectively used its profitable oil field service business to support the company’s operations while it promoted a settlement plan that liquidated the amount that Halliburton would have to pay current and future asbestos claimants. Although other companies have used chapter 11 as part of an overall litigation strategy against asbestos claimants, Halliburton’s strategy to dedicate 59.5 million company shares and $2.8 billion in cash to create a $5.1 billion trust fund to pay current and future asbestos claimants faciliated the settlement while most other companies remain locked in settlement negotiations with lawyers for asbestos claimants.
The case has been closely watched as most other companies have elected to try and resolve their unliquidated liability for asbestos claims through the unwieldly and inconsistent civil justice system. More than 70 companies — including large companies such as ABB Ltd., W.R. Grace & Co., Federal-Mogul Corp. and Owens Corning — have filed chapter 11 cases for themselves or a business unit because of huge asbestos claims, but many of those companies continue to fight with the asbestos claimants and have failed to liquidate the amount that the companies will ultimately have to pay current and future claimants. Many of those companies are actively lobbying for federal tort-reform legislation that would limit mass tort lawsuits and create a universal fund to pay asbestos claims.