Solutia's New Plan: Sell Itself Off

St. Louis, MO, November 16, 2006--After three years in reorganization, chemical maker Solutia Inc. is preparing to pay the piper in Bankruptcy Court, according to the St. Louis-Dispatch. Under a dramatically revised plan, the newspaper quoted Solutia as saying it will sell itself off whole and hand out cash, rather than fragmented slices of equity, to satisfy stakeholders. These stakeholders include Monsanto Co., which under an earlier reorganization plan would have wound up owning as much as half of Solutia, which has its headquarters in Town and Country. Solutia's chief executive, Jeffrey Quinn, said Wednesday that the change is positive because Solutia could emerge from bankruptcy early next year, with a single owner or ownership group that wants to hold and nurture a chemical company. If Solutia's case follows a traditional bankruptcy path, it will present a preferred partner to the bankruptcy judge — a chemical company that wants to acquire Solutia for strategic reasons, or a financial institution that would set up a private-placement offering of Solutia's stock to a select group of investors. Under the previous scenario, stock in a reorganized Solutia would have been split among parties interested primarily in recouping their losses — and, in the case of Monsanto, paying off a pile of environmental liabilities. Solutia and Monsanto share a heritage. They were part of a conglomerate, which also was called Monsanto, that made chemicals, drugs, sweetener and agricultural products. The chemical unit spun out in 1997 to form Solutia. The remaining parent merged in 2000 with Pharmacia & Upjohn Inc. to form Pharmacia Corp.; that company spun off the agriculture division as the new Monsanto in 2000. However, Solutia was loaded with its former parent's retiree health care, pension and environmental liabilities, including cleanups of polychlorinated biphenyls, or PCBs. These costs, totaling billions of dollars, drove Solutia into bankruptcy in December 2003. If Solutia should fail altogether, the liabilities would flow to the new Monsanto under the terms of that company's creation. Therein lies the heart of Solutia's reorganization: Monsanto will share legacy environmental-cleanup costs under both old and new reorganization plans. Along with Pharmacia, it also is defending a lawsuit by pre-bankruptcy Solutia equity holders who allege that Solutia was set up fraudulently and doomed to fail under the financial weight of the liabilities. That dispute must be resolved for Solutia to emerge from reorganization, and settlement talks are continuing. Monsanto also had offered to infuse Solutia with $250 million cash in exchange for up to half of its equity, but Monsanto made it clear that it had no long-term interest in owning or helping to run a chemical firm. Under the new plan, this cash would come from a new group of equity investors. Under the new plan, it is unclear how much cash Monsanto will get for its cleanup assistance, which is estimated to cost more than $284 million, other than assurance the liabilities will not land wholly in its lap. Monsanto spokeswoman Lori Fisher said the company is talking with Solutia about the new plan; it wants Solutia to successfully reorganize. But Monsanto has yet to review all the details, so "it's just too early" to comment further or express support. Solutia said it had hoped to nail down full stakeholder support before making public the revised reorganization plan. It had expected that to come in the next few weeks. But Solutia's hand was tipped by a committee of bondholders — profit seekers two or three bond sales removed from the company's pre-bankruptcy investors — who are asking for court approval to gain influence in the reorganization process, which so far has been solely in Solutia's hands. A hearing on their request is scheduled for today.