A Calamity for Union Carbide

By Charles P. Alexander

The financial future of the chemical giant is in question

The Bhopal disaster was both a human tragedy of historic proportions and a nightmare for one of the largest and best-known U.S. corporations. The horrible dimensions of the accident last week stunned Union Carbide's executives, employees and shareholders. Jittery investors dumped the company's stock, which plunged 12 points to close the week at 37. But the problems for the company may be only beginning. Union Carbide faces the prospect of a long, costly series of lawsuits that could endanger the corporation's financial future.

There is no way to put a price tag on the damage done to Union Carbide's image in the 38 countries, from Nigeria to New Zealand, where it has factories and the 130 nations in which it sells products. In West Germany, protesters last week spray-painted the words POISONERS and PIGS on the walls of a Union Carbide plant and dropped two gasoline bombs at the site. One exploded, but there were no injuries.

At Union Carbide offices around the world, the mood was somber. Said an executive at the corporation's Danbury, Conn., headquarters: "People were scared to death by the company's falling stock price, but most of all they felt terrible about the tragedy." On Thursday at noon the company's 100,000 employees worldwide observed a moment of silence for the Bhopal victims. Without any prompting from superiors, managers launched safety reviews of their operations.

The $15 billion in damages demanded in the first lawsuit filed on behalf of the victims last week is a staggering sum, even for a company the size of Union Carbide. With assets of $10 billion and 1983 sales of $9 billion, it is the 37th-largest U.S. industrial corporation and the third-biggest chemical manufacturer after Du Pont and Dow.

Union Carbide's management has tried to allay shareholders' fears. "The Bhopal tragedy is without precedent," said an official statement. "But considering both the insurance and other resources available, the financial structure of Union Carbide is not threatened." The company would not reveal the source or the extent of its insurance protection against industrial accidents. Cigna, a Philadelphia-based financial-services company, disclosed that it could be responsible for a tiny fraction-no more than about $1 million-of Union Carbide's potential insurance claims. Said a Cigna spokesman: "Our exposure is minimal and certainly will have no effect on earnings."

A crucial uncertainty for Union Carbide is whether courts will conclude that it was negligent and therefore assess punitive as well as compensatory damages. In general, insurance policies do not cover punitive damages. Standard & Poor's estimated that Union Carbide could absorb up to $300 million in accident-related liability costs. Nonetheless, the financial-rating agency put Union Carbide's bonds on a "credit watch" to warn investors about potential risks.

On Wall Street there was some speculation that the company might have to declare bankruptcy and then reorganize to avoid some of the damage payments. In 1982 Manville took that controversial route when it was in danger of being overwhelmed by lawsuits related to its manufacture of asbestos. Most of the problems began in World War II, when thousands of shipyard workers were exposed to asbestos. They later developed serious lung diseases and cancer. Manville is now operating under the protection of the bankruptcy laws, and its profits are insulated from legal claims while it tries to negotiate settlements of the suits. Union Carbide has strongly denied that it is even considering filing for bankruptcy.

The Bhopal disaster came as a shock to the chemical industry because Union Carbide is noted for its safety concerns. Said Dan Edwards, director of health and safety for the Oil, Chemical and Atomic Workers International Union: "The large chemical manufacturers have pretty good track records for health and safety, and I'd say Union Carbide is above average." Said Hugh Kaufman, a hazardous-waste specialist at the Environmental Protection Agency: "I'm not surprised that something like this happened, but I am surprised that it was Union Carbide."

Up to now, the company's most publicized environmental problems have involved pollution. In the late 1960s, environmentalists charged that a Union Carbide iron-alloy plant in Alloy, W Va., was "the smokiest factory in the world." Since then, the company has reduced smokestack emissions at its factories and adopted measures to ensure the safe disposal of chemical wastes.

The Bhopal accident is by far the worst crisis ever to face Union Carbide. The company grew out of a firm founded in 1886 that produced the first dry-cell la battery. Union Carbide played a key role in the Manhattan Project, which developed the atomic bomb. Over the years many of the firm's products, including Eveready batteries, Glad bags, Prestone antifreeze and Simoniz car wax, have become popular items in America's households. But the company's best customers are businesses. Major products include polyethylene and other petrochemicals, industrial gases like acetylene and argon, and pesticides. Such industrial lines accounted for 79% of sales in 1983.

Last week's tragedy was a personal trauma for Union Carbide Chairman Warren Anderson, who has spent 39 years at the company. A graduate of Colgate, where he was a chemistry major and a football letterman, Anderson joined Union Carbide in 1945 as a salesman and moved steadily up the ranks to the chairmanship in 1982. Employees last week admired the way he rushed to India after the accident, even though he knew that he would surely face trouble as soon as he stepped off the airplane. Anderson has been trying to give new momentum to a company that is still reeling from the 1981-82 recession and a worldwide glut of petrochemicals. Annual profits reached a peak of $890 million in 1980, but fell by 91% to $79 million in 1983. The price of Union Carbide's stock had dropped from a peak of 74 in 1983 to 49 before the accident.

A comeback will be all the more difficult after Bhopal. Said one Wall Street analyst: "In cases like this, a company's stock goes into a tunnel and does not come out for a number of years."

For Union Carbide, one bitter irony of the tragedy was that the Bhopal plant was at best a marginal operation because of slumping demand for pesticides. Sales of products from the facility dropped 23% last year to $17 million, and the plant was operating at less than one-third of capacity. -By Charles P. Alexander. Reported by Peter Stoler/New York

With reporting by Peter Stoler/New York