Troubles Aplenty At Union Carbide

By Stephen Koepp

Compared with the misfortunes of Union Carbide, Job had it easy. The company's problems began nearly a decade ago with a profit slump that has persisted ever since. Then this past December came the leak of methyl isocyanate gas from a plant in Bhopal, India, which killed 2,500 people and provoked more than $100 billion in lawsuits. Last month Union Carbide fell deeper into trouble when a toxic leak in Institute, W. Va., sent 135 people to the hospital and prompted an additional $88 million in suits. Now Union Carbide faces a potential assault by corporate raiders who hope that the company is too distracted by its other woes to put up a struggle.

But Union Carbide (1984 sales: $9.5 billion) aims to reverse its fortunes. Last week the Danbury, Conn.-based company dramatically retrenched its operations, announcing that it will eliminate 4,000 white-collar jobs, thereby reducing its work force about 15%. The firm will close several unprofitable plants and make other moves to slim down operations. The large write-offs, which will cost $990 million, will give Union Carbide an estimated net loss of $250 million for 1985, compared with a profit of $323 million in 1984. In a step that could dissuade raiders, the company plans to buy back $500 million of its stock.

These defensive moves may come too late. GAF (1984 sales: $731 million), a much smaller, New Jersey-based building products and chemical company, has already begun to go after Union Carbide. GAF has bought nearly 10% of Union Carbide's shares and is seeking regulatory approval to increase its stake to as much as 15%. While it may lack the financial clout to stage a successful takeover, GAF could force Union Carbide to hand over a treasured division, perhaps one of its specialty-chemicals businesses, as a payoff to end the hostile raid.

Union Carbide's long-term woes stem partly from its slowness to adjust to a slump in the chemicals business, particularly in petroleum-based products. The company's financial performance has lagged behind such rivals as Du Pont and Monsanto for the past several years. To perk up profits, Union Carbide is expected to put less emphasis on petrochemicals so that it can concentrate on its more successful business lines, including industrial gases (nitrogen, argon, oxygen) and consumer products (Eveready batteries, Glad bags, Prestone antifreeze).

One of the most important questions facing the company has nothing to do with business. It is the location of trials for the lawsuits growing out of the Bhopal disaster. If the cases are heard in the U.S., the company may have to pay at least $2 billion and possibly $6 billion or more in settlements. But if Union Carbide wins its plea to have the trials held in India, where liability payments would be much lower, the cost could be $500 million or less.

As if the company's public image were not blackened enough, Union Carbide suffered another toxic leak last week. A cloud of hydrochloric acid escaped from its South Charleston, W. Va., plant, briefly threatening 60,000 people attending an outdoor festival. But this time the company acted swiftly and efficiently. An emergency squad sprayed the chemical with water to dilute it, and no one was seriously injured. Union Carbide can only hope that last week's painful cutbacks will be just as effective.

With reporting by Thomas McCarroll/New York