Asbestos Stocks Hostage to Fate Of Legislation On Liability

By Jerry Knight
Monday, July 25, 2005

Six months ago, W.R. Grace & Co. was the hottest stock in town.

Up more than 400 percent last year, Grace shares were surfing a wave of confidence that Congress would soon pass legislation limiting the liability of companies facing asbestos lawsuits, enabling Grace to come out of bankruptcy, put the asbestos business behind it and get on with life as a chemical and building-supplies company.

But the controversial asbestos bill hasn't even come up for a vote in the Senate and shares of Columbia-based Grace have plunged 40 percent since the first of the year.

Betting on what Congress will do has always been a risky Washington gamble, but that is not the only reason Grace's stock has done so poorly.

Grace's bankruptcy case has turned out to be far more complicated -- and time-consuming -- than buyers of its stock were counting on. And instead of fading into the background, Grace's asbestos problems have taken center stage.

The stock price dropped 8 percent in February after a criminal case was filed accusing Grace of exposing miners and residents of Libby, Mont., to asbestos and then covering up the danger.

Grace stock started skidding again in June when the New Jersey attorney general sued, accusing Grace of falsely claiming that it had cleaned up a site in the suburbs of Trenton where material mined in Libby was processed.

Grace has denied wrongdoing in the Montana and New Jersey cases. A company spokesman did not return calls seeking comment for this column.

The two new cases blindsided speculators who decided last year that companies in the asbestos business were a mother lode of opportunity. All asbestos stocks were a buy, they proclaimed, because they all would benefit from legislation creating a $140 billion fund to pay the claims of people who got sick from working with the mineral, which is no longer widely used because of its risks.

The fund was supposed to take asbestos firms off the hook. They would have to pay into it for years to come, but doing so would limit their future exposure. They would no longer have to fight hundreds of thousands of lawsuits.

The asbestos issue is so highly politicized that asbestos stocks jumped -- Grace shares by 15 percent -- the day after the November election.

With a Republican in the White House and Republicans controlling both houses of Congress, the asbestos bill would be on the fast track, the speculators gambled.

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