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Nygren: That's about right. And that's the sad thing. There are true victims of this - just as I believe there are in the case of tobacco. There are people who are sick or have died because of asbestos. However, because so many healthy people are collecting from these companies, you put at risk the ability of truly damaged claimants to collect.
Shortly after Owens Corning filed for bankruptcy, Owens Illinois had a conference call because it, too, has asbestos issues. And they gave the dollar figure of sales that they've had from products containing asbestos and the number of claims that have been filed. And some analyst got on and said, "I calculate that you have four people claiming they've been damaged for every single unit of product that you've ever sold!"
And an Owens Illinois representative got on and said, "That's the reality. You have one guy who worked on it at the construction site. And that person is generally healthy - and is also the one who was at the highest risk of damage. But basically, anyone who worked on the job - even if all they did was to walk through the room once - is now filing a lawsuit. And they collect."
So it's been a gold mine for the plaintiff's bar. And therefore, they've continually fought legislative attempts to establish medical criteria. That's the best near-term hope for this industry - that with a company as high profile as Owens Corning declaring bankruptcy, they revisit the issue of establishing medical criteria to protect those who are truly damaged and to protect the companies against the cascading lawsuits by claimants with no health impairment.
OID: I wouldn't hold my breath.
Nygren: Agreed. And again, that's unfortunate - because
a number of people were truly damaged. And a number of them have died. But you
wind up scoffing at the whole asbestos litigation process because the majority of
claimants by far haven't suffered any injury at all.
USG IS TRADING AT 25¢ ON THE DOLLAR.
OID: Do you have a private market value calculation that you can share with us?
Nygren: I do. But I recommend that you take it
with a big shaker of salt. We've seen transactions in the building products
industry including companies where wallboard was a big part of their income stream.
And the multiple of EBITDA that those have clustered around has been around 7 times.
And if you were to apply that to our 2002 estimate and deduct
from that figure about $500 million - which is the amount that we estimate it's
likely to take for them to clear up their asbestos problems - we get a value for the
company two years out of $63 per share.
OID: Not bad relative to the current $15-16 price.
But what does that assume about the environment for wallboard pricing and energy?
Nygren: That's assuming that energy stays as
predicted by the futures market which is a mid-$20s level for oil and
whatever that would imply for natural gas - say something around $4.00 per
1,000 cubic feet. And it assumes a midpoint outcome for pricing - $110 per
1,000 square feet for board pricing in 2002.
OID: More or less midway between the 10-year low of $70 and last year's
high of $165 - and very near the current price.
Nygren: That's what we're trying to do - to
model off of midpoint estimates. Obviously, if you put multiples on cyclically
high or low earnings levels, you get weird results that aren't very useful.
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