Outlook for Bhopal settlement gives Carbide sounder footing

Union Carbide is seeing a turnabout that few people expected. Not that the nation's third-largest chemical producer is out of the financial woods. But suddenly -- after news Monday that liabilities from the Bhopal tragedy might not wreck the company after all -- its position isn't looking so awfully bad.

Although the government of India rejected the $350 million tentative settlement reached by injured parties' counsel and lawyers for Carbide, the amounts now being discussed are much less than the ``billions'' of dollars in liabilities that had been talked about.

Combined with the recent free fall in prices for oil (upon which Carbide heavily depends for raw materials), lower production costs make the profit picture look much better.

Add an increasingly robust economy, and you get a sort of guarded optimism from chemical-industry analysts about Carbide and the chemical industry as a whole.

``With oil and gas prices going down, there is potential to capitalize more on earnings from the petrochemical sector of their business,'' says James Wilbur, an analyst with Smith Barney, Harris Upham & Co.

``The outlook is much better,'' says Joseph Salvani, with Goldman, Sachs & Co. ``They've benefited along with the rest of the industry from the lower oil prices.''

Several analysts said the amount being talked about for a settlement of the Bhopal suits points to limited financial damage from the disaster, which killed more than 2,000 people on Dec. 3, 1984.

The company has already taken a charge against earnings (a figure not released) that is estimated to be between $160 million and $185 million. The charge, added to Carbide's insurance coverage, is now thought to cover its Bhopal liabilities.

``The proposed settlement is a significant plus, because the amount they're considering is a lot less than people have been bandying about,'' John P. Henry, chemical industry analyst at E. F. Hutton & Co.

``Of course the Indian government doesn't like it, but in the long run they may have to accept it.''

After a long period of remaining neutral or negative toward the company's stock, some brokerages, including Hutton, put buy orders on Carbide. The stock rose $1.75 Monday.

Analysts' spreadsheets and pocket calculators were busy charting the options open to a company that is still up to its eyeballs in about $4 billion worth of red ink. That's roughly 85 percent of the company's capitalization.

Analysts now seem to think it is last year's failed takeover attempt by GAF Corporation that will, in the long run, end up being more damaging than the Bhopal incident.

Carbide decided it had to repurchase 116 million of its shares at $85 a share to thwart the GAF offer.

But that move created about $2.5 million in new debt and has forced the company to sell off various assets, including its fastest-growing business, the consumer products division. The division produces Eveready batteries, Glad garbage bags, and other household items.

The sale was a blow to Carbide because the company had wanted to diversify its business away from petrochemicals and industrial gases that are vulnerable to cyclical fluctuations in demand.

In the short run, though, Carbide's petrochemical sales and its industrial gases unit in particular are expected to rise along with the economy.

Analysts say the keys to a healthier Carbide are a robust economy, with gross national product rising about 3.5 percent in 1986, and a continuing decline in oil prices.

If these continue, the company could well dump its debt and get back on firm footing before any cyclical downturn occurs.

Carbide sales are expected to reach $7 billion this year. That's a big step down from the more than $9 billion in sales when it had its consumer division. But sales at that level, and other strategic moves, would help bring its debt level to somewhere under $3 billion and closer to the 30 to 35 percent debt level that is the industry norm.

Analysts say the company could sell off $500 million more in assets; factor in $500 million more from its pension fund; sell 10 million to 15 million shares of stock at $25 to $26 a share; and cut capital spending by $100 million, because of the decrease in operations from sale of consumer products and other activities.

Such moves would bring long-term debt to about 40 percent, a bit closer to the industry average. All of these possibilities are reasons for optimism on Wall Street.

``The environment is awfully good for the chemical industry generally,'' says Mr. Henry at E. F. Hutton. ``It is conceivable we could have a good economy through 1988. This could be just what Carbide needs to get its debt down to a safe level.''

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