St. Louis, MO, May 12--Jeffry Quinn, a lawyer who's the new chief executive of Solutia Inc., says he hopes to resolve key issues of its bankruptcy reorganization in a boardroom, not a courtroom, according to the St. Louis Post-Dispatch.
"I come from a legal background and I know, all too well, that a legal resolution is costly, it's (time-consuming) and it seldom leaves all the parties feeling good about it," he said.
So, Quinn will do his best in negotiations with creditors, retirees, employees and a corporate cousin, Monsanto Co. Each has much to gain--or lose--in the process.
Quinn said his goal is to reach "a business transaction...in sort of a litigation environment."
It won't be easy, given the chemical company's complex history.
Solutia spun out of the old Monsanto in 1997. Monsanto merged with Pharmacia & Upjohn Inc. in 2000, forming Pharmacia Corp. A year later, Pharmacia's agrochemical and biotech-seed division spun out to form the new Monsanto. Pharmacia was acquired by Pfizer Inc. last year.
The companies share the legacy of a 100-year-old chemical and industrial conglomerate. When Solutia was set up, it agreed to handle environmental cleanups and related tort litigation, as well as benefits for thousands of retirees and their dependents. Later, the new Monsanto agreed to take over those liabilities if Solutia were unable to fund them.
Those legacy costs greatly contributed to Solutia's seeking bankruptcy protection--and Solutia has said that passing some of them along to Monsanto is key to its reorganization.
Quinn's ascension as chief executive "may open up some opportunities" to further negotiations, said Conor Reilly, a lawyer with Gibson Dunn & Crutcher LLP in New York, who's leading Solutia's bankruptcy case. "It's like a breath of fresh air."
John Hunter, who had been chief executive, and Bob Clausen, who was chief financial officer, left their positions last week. On May 31, after a brief transition, both will retire. Solutia is seeking Bankruptcy Court approval to pay Hunter $1.84 million in severance and Clausen $1.6 million.
Monsanto spokesman Bryan Hurley confirmed that his company and Solutia are negotiating, but couldn't comment on the progress or tenor of the talks.
In recent weeks, Monsanto has taken on some of the legacy liabilities--but only after Solutia defaulted, Hurley said. And Monsanto plans to seek repayment of those costs as Solutia emerges from bankruptcy.
Monsanto agreed with the U.S. Environmental Protection Agency to handle cleanups in Anniston, AL and Sauget, IL over the next six months. It also assumed defense of about 600 tort cases similarly related to the former parent company's production of polychlorinated biphenyls, or PCBs, and other hazardous materials.
"There was this giant, industrial forklift moving this giant pile of boxes" when Monsanto took related case files from Solutia's offices, said Solutia spokesman Glenn Ruskin. Monsanto also hired away some employees familiar with the cases.
In Bankruptcy Court filings, "It sounds like nuclear war between us and Monsanto," Reilly said. However, the companies are making progress. Solutia is at a stage of "using the tools" of bankruptcy, he said.
Solutia has three steps to complete:
Determining what a reorganized company will look like and how much debt it can handle;
resolving the legacy liabilities and other claims against it; and getting creditors to approve a reorganization plan.
Some of those issues may be litigated in Bankruptcy Court. In particular, the EPA and Monsanto have argued against Solutia being able to shed its environmental responsibilities. Retirees, most from the old Monsanto, have sued to enforce joint responsibility for their benefits among Solutia, Monsanto and Pharmacia.
Solutia has filed its own contentious arguments. But these, Reilly said, "are to tee the issues up and to bring some pressure to get the issues resolved. And also as an insurance policy" in case negotiations fail.
A key issue is whether Monsanto or Solutia will fund a study of the extent of PCB contamination in and around Anniston--and pay for the resulting cleanup, Reilly said. Costs could mount quickly, and the scope is unknown.
"It's the big gorilla that no one wants to talk about," he said.
Quinn said he's anxious to emerge from bankruptcy as soon as possible. Reilly said an "optimistic" date is the middle of next year.
In the meantime, Solutia must hold on to its most valuable employees. Quinn said that won't be easy amid such uncertainty, particularly after an announcement last week that the company is freezing its pension plan and increasing workers' health-care payments.
Last year, 12.5 percent of the non-union employees quit, almost double the rate of 2002, according to Solutia's court filings. Among senior-level managers, the 2003 turnover rate was 30 percent.
So, Solutia is seeking court approval to offer retention pay to about 190 of its senior people, critical managers and technical staff. The company has 6,350 employees.
The 190 people, whom Solutia calls "indispensable" in its court filing, will be offered a cash bonus of 25 percent to 100 percent of a year's base pay.
The anticipated total cost--including retention bonuses for Quinn and other senior executives yet to be determined--is expected to be about $15 million.
Quinn said his own bonus, and that of other executives, will be based on performance.
"It's an exciting opportunity, and it's an exciting time," he said. "Given where we are, given the status of our reorganization efforts, there will be change. There needs to be change."
Still, he said, one thing remains the same: "For the men and women of Solutia, focusing on the business plan is what it's all about."
