First patient awarded $1.6 million in Ohio lawsuit
Chemours has lost the first of many anticipated lawsuits over the contamination of drinking water by perfluorooctanoic acid (PFOA) at the Washington Works plant in Parkersburg, West Virginia. This leaves a good deal of uncertainty over the environmental liabilities of the firm, which has already possibly led to a cooling of interest from a potential buyer.
Carla Marie Bartlett, a cancer patient, was awarded $1.6 million at a trial in Columbus, Ohio. Her suit was against Chemours’s former owner DuPont, but Chemours has inherited the liability as part of its spin-off earlier this year. The jury found DuPont at fault for leaking PFOA into drinking water near the site, though it did not award punitive damages because DuPont did not act maliciously.
This was the first trial among up to some 3,500 where claimants allege that they have contracted illnesses as a result of PFOA leakage. A second is due to begin late this year. DuPont had used PFOA at the site as a processing aid for its Teflon non-stick coating for cookware and continued to do so even after learning it was potentially toxic and had been found in drinking water.
DuPont settled a class action case by residents in 2004 and later convened a scientific panel to determine if any diseases were linked to PFOA. This found probably links with six, including kidney and testicular cancer, ulcerative colitis and thyroid disease. One patient in each disease category then sued the company individually as a test case. DuPont has already said that it intends to appeal against the finding in the Bartlett case.
It is unclear whether there is any linkage between the two things but shortly after reports that private equity firm Apollo was considering a buyout cooled off. After a Bloomberg report suggested this, Chemours shares gained nearly 10% but almost immediately a note appeared by Alembic Global Advisors that Tronox might be a better bet, sending its shares up by over 16%. Alembic advisor Hasan Ahmed said that the higher spike showed that “the market is saying Tronox is more likely to be bought. Chemours clearly has issues that Tronox doesn’t.”
According to Bloomberg, Apollo had held preliminary talks with some banks about the feasibility of a buyout of Chemours. However, it noted, various factors might pose an obstacle to Chemours being taken private so soon after its spin-off, including a tax bill for DuPont under IRS rules, as well as potential environmental legislation.
Coincidentally, DuPont CEO and chair Ellen Kullman abruptly retired in the same week after nine years in the job. DuPont gave no reason for this. Edward Breen, who joined the board in February, will be her interim replacement while the company seeks a permanent replacement. Shares in DuPont rebounded sharply in the expectation of more shareholder-pleasing moves from the company, even as it slashed its earnings per share guidance for the year from $3.10 to $2.75.
As well as overseeing the spin-off of Chemours this year, Kullman fought off a fierce challenge from ‘activist’ investor Trian Fund Management, which had accused the management of failing to deliver value. Trian’s CEO Nelson Peltz demanded more seats on the board to pursue its agenda but was voted down at a shareholder meeting in May.
Forbes magazine’s Jim Collins said that it was “impossible to come to any conclusion other than DuPont’s series of massive earnings misses led to the ‘mutual decision’ for Ms. Kullman to ‘retire, at age 59”. Peltz, he added, may have lost the battle and won the war as the market “is lathered up over the potential for corporate restructuring at DuPont”.
In point of fact, Collins noted, this had already happened with the spin-off of Chemours, which he labelled “a disaster”. Kullmann, he said, portrayed the spin-off as a way to keep dividends unchanged by offsetting the loss of the earnings from the former Performance Chemicals division by a $100 million quarterly payment from Chemours, which no Wall Street analyst believes has any chance of being maintained.