Union Carbide takeover by US firm runs into rough weather

The Asian Age website

San Francisco, May 26, 2000: Over 15 years since deadly methyl isocyanate escaped into the December night air from a Union Carbide pesticide plant in Bhopal, leaving in its aftermath a death toll that is still rising, the tragedy continues to haunt the company. Michigan-based Dow Chemical Company’s plans to buy rival Union Carbide Corporation have run into a spot of trouble following a suit filed by Dow shareholders alleging the company’s officials failed to disclose that Union Carbide continues to be exposed to significant criminal and civil potential liabilities stemming from the Bhopal gas disaster of December 1984.

In their suit, the complainants allege Dow failed to disclose that Union Carbide is still a defendant in a criminal prosecution in the Bhopal district court, charged with culpable homicide, manslaughter, grievous harm, and other serious criminal charges, which expose Union Carbide to potentially billions of US dollars worth of criminal fines, restitutionary damages, and sanctions.

They add Dow made erroneous denials of the existence of any such proceedings and potential liabilities.The suit was filed earlier this month in the United States district court for the southern district of New York on behalf of all persons who held the common stock of Dow Chemical Corporation, at any time since August 13, 1999.

The Union Carbide pesticide plant in Bhopal released approximately 40 metric tonnes of poisonous methyl isocyanate on the night of December 2, 1984, killing thousands and injuring almost half a million residents. Over 15 years later, soil and groundwater resources of several densely-populated neighbourhoods in Bhopal continue to be contaminated.

The board of directors at Dow Chemicals, a global science and technology-based company that develops and manufactures a portfolio of chemicals, plastics and agricultural products and services for customers in 162 countries around the world, has also been charged with violations of federal securities laws.

The complaint alleges the defendants failed to comply with applicable disclosure requirements in filing an SEC Schedule 13D on August 13, 1999, that contained materially false and misleading statements and omissions of material facts concerning the company’s planned acquisition by merger of Union Carbide Corporation and numerous undisclosed potential criminal and other liabilities and dangers of business disruption to which Dow would be exposed upon acquiring all of Union Carbide’s assets and liabilities.

David M. Romero, manager, litigation support, at the New York law offices of Curtis V. Trinko, which filed the suit, told The Asian Age some serious allegations had been raised and it was now up to Dow Chemicals to decide whether or not it should go ahead with the merger. "The merger is in Dow’s hands. Personally, we feel the monetary value offered for Union Carbide is much too high compared to the liabilities such a merger will entail," Mr Romero said.

Dow Chemical plans to acquire 100 per cent of Union Carbide stock by giving $9 billion worth stock to Union Carbide shareholders. "Besides this, Dow hasn’t taken into consideration Union Carbide’s criminal liabilities which are potentially worth $2 billion to $4 billion. So that makes it a roughly $11 billion take over," he pointed out.

The complaint also alleges Dow failed to disclose that Union Carbide failed to appear in India to face criminal charges, and consequently was found by Indian courts to be a "proclaimed absconder" from justice, which resulted in all of Union Carbide’s assets located within India being attached in an ongoing effort by the courts to compel Union Carbide to appear in criminal court.

"Investors have a short memory. Very few of them knew about Bhopal. Now it seems several senior Dow officials may also not have known about Union Carbide’s role in the Bhopal disaster," Mr Romero said.

Sue Breach, a senior global media relations official at Dow Chemical Company, told The Asian Age: "While we cannot comment directly because Dow and UCC remain two separate companies, the 1984 Bhopal accident was one of the many historical factors considered by Dow when looking at the transition." Reacting to allegations made in the suit, Ms Breach said:

"Our shareholders know what happened in Bhopal. Everyone knows."The complaint further alleges that Dow also failed to disclose that upon acquisition of all of Union Carbide’s assets and liabilities, Dow’s Indian holdings would be in danger of being attached, just as Union Carbide’s assets were, in an effort by the Indian courts to compel Dow to appear and face the criminal charges that Union Carbide has so far refused to face.

"The Indian courts correctly attached all Union Carbide’s assets in India following the Bhopal tragedy. If Dow doesn’t agree to cooperate with the law it might find its assets in India may also be similarly attached," Mr Romero said, adding: "Dow has significant business in India and has publicly identified India, along with China, as being a main priority for future growth of the company.

Such a disruption of Dow’s Indian holdings would also interfere with Dow’s announced plans to expand its business operations in India. Union Carbide is a fugitive from justice. They had to completely withdraw from India and this would be a very high cost for Dow to pay."

Ms Breach responded: "The matter was legally resolved in India with respect to Union Carbide Corporation and its subsidiaries." Informed that former Union Carbide chairman Warren Anderson continues to evade arrest even as several criminal cases were still pending in courts against Union Carbide, Ms Breach declined to comment further saying her company had not yet received a copy of the suit. The complaint also alleges that Dow’s failure to disclose or address these potential liabilities and dangers of business disruptions has had the following results: that Dow has underestimated the liabilities it stands to assume pursuant to the merger; and that Dow has, as a result, made an excessive offer to render over $9 billion worth of its stock in exchange for all outstanding shares of Union Carbide.

Mr Romero said Dow officials, while eager to take on United Carbide’s assets, had publicly stated that they would have nothing to do with its liabilities."Under the US legal system it’s very simple. If you buy a company whole you take on its assets as well as its liabilities. Since Union Carbide is criminally liable in the Bhopal gas tragedy case, Dow will be sitting on billions of dollars which are not legally theirs," Mr Romero explained.As regards Dow’s cooperation with Interpol and Indian courts investigating the Bhopal gas tragedy, Mr Romero said the courts would require that it take liability.

The complaint alleges that, if the merger is concluded at the present valuation, Dow and Dow’s shareholders will be substantially damaged by the assumption of Union Carbide’s undisclosed liabilities."Dow may decide they don’t want to have anything to do with this deal.

A cancellation of a merger would be devastating for Union Carbide. The world will learn that Union Carbide is still operating in the shadow of Bhopal," Mr Romero said, adding that so far Union Carbide has tried to ignore the fallout of Bhopal.

Ms Breach said that as the deal with Union Carbide had not been closed as yet, it would be inappropriate to comment on whether or not Dow would shoulder Union Carbide’s liabilities. "They are two separate companies as of now," she said.

By Ashish Kumar Sen