A judge in Australia ruled against CSR Limited’s bid to break its sugar and foods group away from the construction materials portion of the company due to concerns that the new firm would not be able to meet their previous commitments to victims of asbestos exposure. Executives with the company stated that they had covered this eventuality when they presented their demerger proposal to the court.
In a statement issued last week, a company spokesman said that CSR would still “responsibly meet asbestos claims” after the demerger as they had in the twenty previous years. The news affected CSR’s attempts to sell its sugar divisions Bright Food Group Company, a food-processing firm owned by the Chinese government. A Bright Food executive said that the company was still interested in acquiring the sugar components of the business. Their last reported bid was for US$1.3 billion.
The judge’s refusal to grant the demerger may have put the bidding process on hold indefinitely. The proposed new business unit, which would also have included renewable energy research, would have been split off from the main body of CSR after a shareholders’ vote next month. At that point, the new unit, dubbed “Sucrogen”, would have been available for acquisition by Bright Food.
CSR proposed that, after the Sucrogen split, the company would still be able to pay its remaining commitments to asbestos victims from its building supply business. However, most market observers believe that the lucrative sugar business has contributed a much higher percentage of profit to CSR’s bottom line than the building supply sides of the company. If the judge were to allow the Sucrogen unit to split off, those observers maintain that the new CSR would not be able to meet its previous commitments.
According to Justice Margaret Stone of the New South Wales Supreme Court, the split would have left CSR with a “considerably” lower level of market capitalization and would have left the company much less able to make its asbestos settlement payments. The stock price fell more than ten percent the following trading day when traders heard the news.
A report from investment bank Merrill Lynch said that asbestos remains “a very political” issue in Australia. Construction material manufacturer James Hardie Industries used asbestos in many products for more than fifty years before the dangers behind the material were well known to the general public. In those years, thousands of patients have been diagnosed with lung disorders ranging from asbestosis to mesothelioma.
The attempted demerger and the issues with asbestos payments prompted an investigation by the Australian Securities and Investments Commission. Stock analysts noted that Judge Stone’s ruling was the first time an application to demerge portions of a company had been refused and that another such attempt by CSR may prove “impossible”.
Last year, a group of labor unions and environmental activists created a public service information campaign to educate construction workers and called on veterans of the building trades to visit their physicians and get tested for asbestos-related lung diseases.
Sources: Business Week, Wall St. Journal
