Amec Foster Wheeler – 2014 Deal – Asbestos Reserves

It’s an amazing world out there when one thinks about mass tort claims, corporate m&a, and due diligence. Some people “get” the issues, and others do not.  From the outside, it’s hard to know what was done – or not done – when m&a was contemplated. The point came to mind this week because of a report that Amex Foster Wheeler had acknowledged asbestos-litigation reserves of around $310 million after giving effect to hoped for insurance recoveries.  On seeing that story, I went back to check on when Amec Foster Wheeler was created. The deal was done in 2014, according to the “history” page at the web site. One wonders if the deal makers had the proper numbers in sight when negotiating.

The current situation is as follows, according to an August 14, 2017 story at builder.co.uk:

“The firm’s half-yearly results, released last week, stated: “The legacy Foster Wheeler business is exposed to significant numbers of claims relating to alleged exposure to asbestos. The quantum of these claims is actuarially forecast each year and provisions are held against these loss projections. However there is a risk that these loss projections will be exceeded and the provisions could be inadequate to meet the liabilities.”

The claims relate to various subsidiaries in the UK and US, where people were allegedly exposed to asbestos primarily in connection with equipment allegedly manufactured during the 1970s or earlier, according to the company.

Amec Foster Wheeler has asbestos-related liabilities of £420m. These include estimates of indemnity amounts and defence costs for current and future claims expected up until 2050, according to the report. Insurance recoveries relating to asbestos claims are estimated at £110m – leaving the firm with a bill of at least £310m.

Its latest annual report, released just a few weeks ago, warned: “We expect to have net cash outflows of $30.4m as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2017. This estimate assumes no additional settlements with insurance companies and no elections by us to fund additional payments.”

The company admitted that predicting the costs of future asbestos claims “is subject to a number of uncertainties that may result in significant changes in the current estimates.” These include things such as the number and type of claims filed as well as “uncertainties surrounding the litigation process” in different jurisdictions and cases.

In the US, which accounts for the “overwhelming majority” of cases, many of which are for mesothelioma or lung cancer, there were 3,800 claims made in 2016 – up from 3,420 in 2015.

The annual report said: “Increases in the number of claims filed or costs to resolve those claims could cause us to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on our financial condition, results of operations and cash flows.”

Some of the company’s subsidiaries are defendants in “numerous asbestos-related lawsuits and out of court administrative claims in which the plaintiffs claim damages for bodily injury or death alleged to have arisen from exposure to asbestos,” it added.

Although the company has insurance cover in place, some of its arrangements are for “fixed monetary amounts and/or provide cover only for claims made before a specified future date.”