Humbled But Raring to Go

By Janice Castro

When the Manville company entered bankruptcy in 1982, it was facing one of the worst product-liability disasters in history. Some 16,500 personal-injury lawsuits had been filed by industrial workers who claimed that they had developed lung cancer and other pulmonary diseases as a result of inhaling Manville-produced asbestos fibers. More than 50,000 other alleged victims were preparing to sue. Juries had already given damage awards of $1 million to several individuals, so the company's potential liability was overwhelming. Even if the company were liquidated, the anticipated claims could not be paid.

Critics said that Manville was using Chapter 11 to duck its responsibilities. Yet as Manville (1987 sales: $2.1 billion) emerges from bankruptcy this month, the 130-year-old company is winning praise -- even from many of its victims. Under a complex reorganization plan, the company will pay out more than $2.5 billion in claims over the next 27 years. Despite its monumental obligations, the company is in many ways stronger than ever before. Says Tom Stephens, 46, Manville's chief executive: "After six years in the starting gate, we're raring to go."

To compensate victims, Manville will set up a personal injury settlement trust, funding it with $2.6 billion in cash and bonds and up to 20% of its annual profits for nearly three decades. Manville will replace its 24 million outstanding shares of common stock with 48 million new shares, giving half to the trust (value: about $400 million). Current stockholders, though, are out of luck: they will receive only one share of the new stock for every eight old shares they own.

To meet its obligations, Manville must squeeze every possible dollar out of its sales of fiber-glass insulation, forest products and industrial goods. During its bankruptcy, Manville slashed costs and reduced its 26,000-worker payroll by 8,000 employees. The firm shut down its asbestos mine, trimmed money-losing subsidiaries, and sold its headquarters building near Denver.

Results: the company, which lost $45 million in 1985, made a $73 million profit in 1987. Stephens credits middle managers who helped run the company while top executives were working on the reorganization plan. But the spotlight is on the gung-ho Stephens, a onetime paper-mill worker who joined Manville nine years ago. As the company's chief financial officer, he was the architect of the reorganization and moved up to CEO in 1986.

Some investors are worried that Manville's huge obligations could sap its spending on research and capital improvements. But the company will spend $150 million a year through 1991 to expand and modernize its plants. The ; streamlining has also produced an extra $200 million in cash that the company may use for acquisitions. Stephens, who says he would like to teach college when he leaves Manville, will have an eventful corporate odyssey to recount for his students.

With reporting by S.C. Gwynne/Denver