Palaces For The People
Monday, December 22, 2003
Retiree benefits are key to Solutia

Retiree benefits are key to Solutia
By Christopher Carey


Solutia Inc. wants to void the terms of its spinoff in 1997 from Monsanto Co., and is asking a bankruptcy judge to free it from responsibility for the retiree insurance benefits it inherited in the deal.

Solutia sought protection early Wednesday in bankruptcy court in New York, saying it no longer could afford the combined $100 million a year in environmental, legal and health-care liabilities it assumed.

Solutia wants to shift the cost of health, disability and life insurance for Monsanto retirees to Pharmacia Corp., which absorbed Monsanto in 2000.

Solutia's effort to keep up with those obligations was undermined by the sluggish economy, a weak chemicals market and volatile energy prices, said John C. Hunter, chairman and chief executive. "These assets could no longer bear the burden of the former Monsanto legacy liabilities," he said.

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Solutia filed under Chapter 11 of the U.S. Bankruptcy Code, and plans to continue operating as usual while trying to reorganize its finances. The company, which has its headquarters in Town and Country, listed $2.85 billion in assets and $3.22 billion in liabilities.

Solutia employs about 6,700 people worldwide, including 700 in St. Louis.

The bankruptcy filing just after midnight surprised some analysts, who thought Solutia would be able to negotiate an out-of-court settlement with Pharmacia and Monsanto.

The filing means that the latter two companies will be asked to bear responsibility for some of the estimated $755 million in pre-spinoff, or legacy, liabilities on Solutia's books.

"My guess is that more than half, if not considerably more than half, (of the liabilities) are going to fall back on Monsanto," said Bob Amenta, an analyst for 40/86 Advisors Inc. in the Indianapolis area.

Pharmacia spun off a second incarnation of Monsanto last year. As part of that deal, the new Monsanto agreed to take responsibility for any Solutia liabilities that might revert to the former parent company.

Pharmacia later became part of Pfizer Inc.

Solutia's filing should have no impact on either of those businesses, said Paul Fitzhenry, a Pfizer spokesman. "We fully expect that Monsanto will honor its contractual commitments," he said.

Monsanto has been monitoring the situation and is prepared to manage the liabilities that might come its way as a result of the bankruptcy, said Hugh Grant, its president and chief executive.

"We are familiar with the major areas of potential liability, and we've developed plans to deal with these possibilities," Grant said in a statement.

Given the strength of its operations, Monsanto should have little trouble covering the additional expenses, Amenta said.

Grant said Monsanto will resist any attempt by Solutia to shed other responsibilities, such as its retiree pension plan, which was fully funded at the time of the spinoff. "We will not take on any obligations that are not ours," he said.

Solutia provides benefits to about 20,000 retirees, many of whom ended their careers when the business was part of Monsanto.

Paul Savage, a former manufacturing superintendent in Greenwood, S.C., is one of them. When Savage retired from Monsanto in 1985, he was told that he and his wife would have fully paid medical and prescription coverage for life.

"They treated us right, until the spinoff," he said. "But now, we're paying a premium, and it goes up every month, which cuts into my pension."

Savage, 72 and recently diagnosed with cancer, said he is worried about what might happen to his coverage. "The future doesn't look too good, in my opinion," he said.

Monsanto is based in Creve Coeur. Its executives are determined to make sure that Solutia's bankruptcy case doesn't become a distraction, Grant said. "The focus is on our customers, our products, our technologies and our performance," he said.

Solutia warned for months that it might seek reorganization in bankruptcy court if it couldn't restructure its debt or get help with the environmental and retiree liabilities.

Monsanto had been working with Solutia on that front, particularly in the settlement of two class-action lawsuits arising from contamination by polychlorinated biphenyls, or PCBs, in neighborhoods around Anniston, Ala.

But the discussions between the two sides on a broader resolution of the legacy liabilities broke down this month, when Solutia notified Monsanto and Pharmacia that it wouldn't make a $3 million payment in an asbestos case in Texas, Grant said.

"There was no clarity in determining what the next bill was that Solutia chose not to pay," he said.

Solutia and 14 U.S. subsidiaries filed Chapter 11 petitions in the Bankruptcy Court for the Southern District of New York, in Manhattan. Solutia's non-U.S. affiliates weren't covered.

Hunter said, "We believe that the Chapter 11 process will give us a forum to shed these burdensome liabilities and to compete on a more level playing field with others in our industry."

Jeffry N. Quinn, Solutia's senior vice president and general counsel, has assumed the additional title of chief restructuring officer.

The bankruptcy reorganization is the culmination of years of change for Solutia and its former parent company.

The original Monsanto was a diversified company that sold pharmaceuticals, chemicals, herbicides, seeds and sweetener. It spun off the chemicals business to focus on biotechnology. But before it could fully exploit that strategy, Monsanto combined with Pharmacia & Upjohn Inc., a drug company. The merged business became Pharmacia Corp.

Pharmacia later spun off the herbicide and seed business into a new company that revived the Monsanto name.

Solutia has annual revenue of roughly $2.2 billion. Its products include nylon and acrylic fibers, window and industrial film, adhesives and specialty chemicals. Its brands include Wear-Dated carpets and Vanceva and Saflex window films.

It also is a partner in two chemical joint ventures, Astaris and Flexsys.

Trading in Solutia's stock was suspended Wednesday by the New York Stock Exchange. When it resumed on the over-the-counter market, the shares plunged 85 percent, ending the day at 38 cents, off $2.16.

In a bankruptcy reorganization, those shares could become worthless, reducing the wealth of investors and current or former employees with shares in their retirement accounts.

Solutia's unsecured creditors are likely to wind up exchanging debt for significant equity in the company, Hunter said.

"The ownership of the company will clearly change," he said.

Monsanto's stock closed at $26.65, off 83 cents. Shares of Pfizer closed at $34.35, off 25 cents.

Solutia Inc.

Headquarters: Town and Country
Founded: 1997, in a spinoff from the original Monsanto Co.
Chairman, chief executive: John C. Hunter
Employees: About 6,700 worldwide
Annual revenue (2002): $2.24 billion
Net loss (2002): $151 million

Source: Solutia Inc.

Here's a look at what Solutia Inc.'s bankruptcy petition means for key groups inside and outside the company:


Solutia says it plans no layoffs in connection with the bankruptcy reorganization. The company asked the judge for permission to continue paying wages, salaries and health and welfare benefits on a normal basis.

Solutia's affiliates outside the United States weren't included in the filing, so non-U.S. employees aren't affected.


Solutia is seeking relief from the so-called "legacy liabilities" it assumed when it was spun off from the former Monsanto Co. Solutia wants the bankruptcy court to shift financial responsibility for health-, disability- and life-insurance coverage to Pharmacia Corp., which absorbed Monsanto in 2000.

Solutia has mailed more detailed information about the reorganization to retirees to whom it provides benefits.


Solutia said vendors would be paid in full for all goods and services provided after the filing date, as required under bankruptcy law.

Solutia said it had received a commitment for as much as $500 million in new debtor-in-possession financing, which along with cash from operations should give the company ample liquidity to meet its expenses.


Solutia has set up a reorganization hot line for employees, retirees, suppliers and others with a stake in the company. The toll-free number within the United States is 1-800-298-2303. The number outside the United States is 314-674-4075.

Solutia also has added a section on the proceedings to its Web site,

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