ST. LOUIS – (Dow Jones) – A combination of past court outcomes and the involvement of a state judge and federal judge helped the parties involved in the Alabama polychlorinated biphenyls litigation reach a $600 million cash settlement. Solutia, Inc. (SOI), Monsanto Co. (MON), Pfizer, Inc.’s (PFE) Pharmacia unit and the companies’ commercial insurers announced late Wednesday that they had reached a cash settlement of $600 million with plaintiffs in the Abernathy and Tolbert cases. There was no admission of wrongdoing by any of the parties. Monsanto will pay $390 million of the settlement, an amount that is much less than at least on analyst expected. Insurance companies will pay $160 million, and Solutia will pay $50 million. Pfizer will pay for community health initiatives for low-income residents of Anniston, Alabama, and Calhoun County, Alabama,that are valued at more than $75 million. Jere Beasley, the Montgomery, Alabama, co-lead attorney in the Tolbert case, credited the involvement of Judge U.W. Clemon, the senior judge in the U.S. District Court for the Northern District of Alabama, in getting the parties together. Clemon, who was overseeing the matters in the Tolbert case, which was scheduled to go to trial in October, participated in the mediation, Beasley said. That’s something Beasley said he’s never seen a federal judge do. Judge R. Joel Laird, Jr., the State Circuit Court Judge in Calhoun County who was presiding over the Abernathy case, also got involved in negotiations, as did a mediator appointed by the federal court, Beasley said. “So it’s unprecedented to have both judges involved,” said Beasley, who co-represented about 15,300 plaintiffs in the Anniston area. During a conference call earlier Thursday, Solutia Chairman and Chief Executive John Hunter credited and complimented Clemon for bringing all the parties together and being persistent in getting them to talk. In addition, the companies involved realized the time had come to settle the matter, Beasley said. The companies started with a settlement figure lower than the final $600 million, and the plaintiffs’ attorneys started out with an amount “slightly higher” than $600 million, he said. The sides reached an agreement after about eight weeks of negotiations, Beasley said. Donald Stewart, the Anniston attorney representing 3,500 plaintiffs in the Abernathy lawsuit, attributed all parties finally being able to reach an agreement to the companies looking at past Alabama PCB verdicts and deciding it was best to settle, and a desire by the attorneys to get clients their money from the companies. Stewart estimates the plaintiffs in the cases will be receiving money in about 30 days. The federal mediator noted in court Wednesday that when discussions began, few if any thought a settlement could be reached, Solutia spokesman Glenn Ruskin said. Monsanto executives said earlier Thursday in a conference call that Monsanto is responsible for a $550 million pretax payment in the settlement. Shortly after Monsanto’s payment is made, its insurance carriers will reimburse the company about $160 million and that will leave Monsanto with a payment of $390 million, the company said. The amount will be somewhat offset in future years by the tax effect of the settlement, Monsanto Chief Executive Hugh Grant said. Monsanto’s share of the settlement was much less than Banc of America Securities, LLC analyst Kevin McCarthy expected. When he launched coverage of Monsanto in mid-April, McCarthy estimated that Monsanto’s liability in the Abernathy and Tolbert cases would be $1.65 billion, or about $6 a share. McCarthy increased his estimate to $2.33 billion, or $9 a share, earlier this month. Analysts have estimated that Monsanto’s $390 million payment is equal to about $1.50 a share. “While a $390 million pretax hit is not positive in and of itself, it’s much better than the market had anticipated,” said McCarthy, who doesn’t own shares of Monsanto. Banc of America expects to receive or intends to seek investment banking compensation from Monsanto in the next three months. With the cloud of PCB litigation lifted, McCarthy raised his rating on Monsanto to buy from neutral and he increased his target price to $30 a share from $24. McCarthy doesn’t expect that Monsanto will have to worry about PCB litigation for a long time, noting that Wednesday’s settlement addresses a “major issue” that shareholders have been worried about for many years. Monsanto is likely out of the woods for at least the foreseeable future when it comes to covering any financial obligations for Solutia, McCarthy said. The Monsanto company that existed before its merger with Pharmacia & Upjohn in March 2000 spun off Solutia in September 1997. The spin-off included the plant in Anniston that residents claim dumped PCBs in their neighborhoods. If Solutia were to ever file for bankruptcy or not be able to pay certain financial obligations, such as environmental liabilities, litigation liabilities, and post-employment benefit liabilities, the responsibility would ultimately fall to Monsanto. The settlement removes a major overhang on Solutia and Monsanto in terms of how bit the liability would have been if a settlement hadn’t been reached, said Bear Stearns & Co. Analyst Frank Mitsch. The $390 million that Monsanto is paying as part of the settlement “is a lot of money in anybody’s language, but the price is far less than what they would have ultimately had to pay if Solutia had to file for Chapter 11,” Mitsch said. The settlement means that Monsanto is less likely to have to cover any financial obligations for Solutia, Mitsch said. Mitsch owns one share of Solutia stock and no Monsanto stock. Bear Stearns seeks to do business with companies in its research reports. Plaintiffs in the Abernathy and Tolbert cases claimed that PCBs dumped in the Anniston area by a plant that Solutia owns reduced the property values and made them ill. Other plaintiffs claimed the PCBs might make them sick in the future. The Abernathy case, which had been being heard in Alabama state court, is named after a defendant in the matter. The case is four consolidated cases brought on behalf of 3,500 plaintiffs. As of Aug. 11, a jury had awarded the plaintiffs compensatory damages totaling about $101 million for the first 509 of the 907 plaintiffs who made property damage claims. The Tolbert case was scheduled to go to trial in federal court on Oct. 14. That phase would have involved claims by four plaintiffs. Half of the $600 million settlement is for the 3,500 Abernathy plaintiffs and the other half if for the 15,300 Tolbert plaintiffs. The plaintiffs’ attorneys in each case will get $120 million, meaning the plaintiffs in Abernathy will get $180 million and the Tolbert plaintiffs will receive that amount also, Tolbert attorney Beasley said. The settlement doesn’t include the expenses that the attorneys in both cases incurred, Beasley said. He estimates that those fees are about $25 million total. The legal fees for the companies aren’t included in the settlement. Solutia has spent about $35 million in the last two years defending itself in PCB cases, said Liesl Livingston, director of Solutia’s public affairs. Monsanto had legal costs in the PCB litigation, but the company hasn’t broken that out from its other numbers, spokeswoman Lori Fisher said. The legal fees are part of Monsanto’ selling, general and administrative costs and so it’s impossible to isolate the amount, she said. Monsanto and the insurers will deposit $75 million in state court for the Abernathy case and another $75 million in federal court for the Tolbert case by Aug. 26, Solutia’s Ruskin said. Within seven days after that, or no later than Sept. 5, Monsanto and the insurers will deposit an additional $200 million in each case, he said. Solutia’s $50 million portion of the settlement will be paid in equal installments over 10 years. Half of the money will go to the Tolbert case and half of it will go to the Abernathy case. The company’s first payment of $2.5 million for ea
ch case is due on Aug. 26, 2004. All parties will be back in court on Aug. 26 to sign a final agreement, which is then expected to get immediate court approval. Federal Judge Clemon has appointed a special master in each of the cases to determine how to allocate the funds among the plaintiffs, Ruskin said. The special master will then make a recommendation to the respective judges and they will make the final determination in how much money each plaintiff receives. Criteria will be set, such as the amount of PCBs in a plaintiff’s blood, to determine how much each person gets, Beasley said. For some plaintiffs, the amount “will be substantial” and for others it will be less, he said. In deciding to reach a settlement, the plaintiffs’ attorneys had to consider the number of people involved in the lawsuits and the possibility of Solutia filing for bankruptcy, Beasley said. “Had Solutia been forced into bankruptcy, (the cases) would have gone into federal bankruptcy court and then they would have been tied up there for years,” Beasley said. “Some plaintiffs might not be here then. So we had to consider that and factor that in.” In addition to having their properties cleaned and their illnesses being addressed, the Tolbert plaintiffs are happy that they are getting a badly needed medical center in the Anniston area and a prescription drug program, Beasley said. “So all this makes it an excellent settlement,” he added.