Shares in Dow Tumble on Asbestos Concerns

Date: 14 January 2002

Shares in Dow Chemical Co., the No. 2 U.S. chemical company, dropped nearly 14 percent in afternoon trading on Thursday on investor fears concerning the company's asbestos liabilities.

Dow, based in Midland, Michigan, reached a settlement on Wednesday in an asbestos lawsuit filed in Texas against Union Carbide Corp., which it acquired last year.While the company would not release details of the settlement, it said it was not outside the range of previous Carbide settlements.

Union Carbide once mined asbestos and operated a unit that made products containing asbestos.

A Dow spokesman said the company has been reviewing potential litigation and does not believe it "is a material concern." He added Dow has sufficient insurance to cover any damages or settlements from asbestos-related litigation.

Analysts, however, said investors are fearful of the company's potential liabilities and are dumping shares because they are unable to put a dollar figure on it.

"Dow never moves 10 percent on economic news. Obviously people are saying its asbestos risk is much worse than what we though," said David Karens, an analyst at Argus Research.

"No one outside the company knows what the potential liability is, and there is a suspicion that Dow's vulnerability to future asbestos judgements could greatly exceed existing estimates."

Shares in Dow rebounded from the day's low, falling 7.74 percent, or $2.63, to $31.37, near the close of Thursday trade on the New York Stock Exchange.

The suit, filed against Union Carbide and others by 14 plaintiffs in Texas state court, had raised concerns about Dow's exposure to asbestos-related litigation, which has bitten into profits and forced bankruptcies at a number of U.S. construction and manufacturing companies.

Nine major companies facing asbestos liabilities, including building materials makers Owens Corning and Armstrong Holdings Inc., and chemicals company W.R. Grace & Co., have filed for Chapter 11 bankruptcy protection since last year.

Karens said PPG Industries Inc., a chemicals, paint and glass manufacturer, could also be facing potential asbestos liabilities.

Dow's problems, however, are not limited only to asbestos. The industry is also suffering from overcapacity and weak demand, with a rebound nowhere in sight, said analysts.

"Things are not going to get better in 2002 and 2003 because there is still too much production capacity for the petrochemical makers -- including Dow, which is most vulnerable, and Lyondell Chemical Co. among others," said Karens.