Solutia Takes Step on Reorganization
Tuesday June 7, 5:23 pm ET
Chemicals Company Solutia Inc. Takes a Step Forward in Reorganization Plan Process
ST. LOUIS (AP) -- Chemicals company Solutia Inc. reached an agreement in principle with Monsanto Co. and unsecured creditors on Tuesday that could result in a plan allowing Solutia to exit bankruptcy protection.
St. Louis-based Solutia said it now expects to file a reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York this summer.
Solutia's President and CEO Jeffrey Quinn called the agreement a "major milestone" in Solutia's reorganization.
"It provides significant relief from the historic liabilities that were a driving factor in our Chapter 11 filing, reduces the risk profile of the company in terms of contingent liabilities and strengthens our balance sheet," he said in a statement.
Monsanto Chief Financial Officer Terry Crews said Monsanto's goal was to resolve issues related to Solutia's bankruptcy to best protect Monsanto's shareholders.
In seeking Chapter 11 bankruptcy protection in December 2003, Solutia cited its struggles under heavy financial obligations assigned to it when it was spun off by the former Monsanto as a separate company in 1997. Solutia was on the hook for retiree benefits, environmental and litigation costs accrued by Monsanto and Pharmacia over a century of manufacturing.
In 1999, Monsanto, based in suburban St. Louis, was acquired by Pharmacia & Upjohn to create Pharmacia Corp., which in 2002 completed a spinoff of its biotechnology and agricultural businesses to form the current Monsanto. Pharmacia was acquired by Pfizer Inc. in April 2003.
Key elements of the new agreement in principle include:
-- A $250 million infusion of equity in the reorganized Solutia. Solutia said the investment will be in the form of a rights offering to unsecured creditors. Solutia said $150 million will be used for retirees who worked for Pharmacia Corp. and were assigned to Solutia at the time of the spinoff on Sept. 1, 1997. Another $50 million will be used for remediation costs related to cleanup and litigation in Anniston, Ala., and Sauget, Ill.
Another $50 million would be used at Solutia's discretion to satisfy liabilities.
Monsanto said it will underwrite the $250 million in funding in return for an equity position in Solutia, but that other unsecured creditors may participate in this funding.
-- Monsanto said it can receive about 50 percent ownership of Solutia's stock in exchange for the funds spent by Monsanto to help bring Solutia out of bankruptcy or committed toward Solutia's reorganization, settlement of litigation and environmental remediation programs and the equity infusion.
-- Monsanto and Solutia said they would manage some environmental remediation programs separately, but also agreed to share some sites. An advisory board, with members appointed by both companies, will oversee sites that will be jointly managed. Monsanto said it retained oversight of resolving tort litigation claims.
Solutia makes nylon products, films for laminated safety glass as well as water-treatment chemicals, heat-transfer fluids and aviation hydraulic fluid. Monsanto makes Roundup herbicide and supplies crop seeds.
Monsanto shares rose $2.83, or 4.8 percent, to close at $61.63 Tuesday afternoon on the New York Stock Exchange. Solutia stock, which is sold over the counter, was trading at 45 cents a share, down 42 percent.
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