James Hardie approves $3 billion asbestos deal

MELBOURNE - The board of building materials group James Hardie Industries approved a long-delayed final agreement yesterday to pay more than A$3 billion ($3.15 billion) to victims of asbestos-related diseases in Australia over 40 years.

The company is still waiting for a final decision from the tax office on whether it will allow the payments to asbestos disease sufferers to be deductible, a key factor on which the agreement hinges.

"All parties involved in the negotiations have agreed it is in the interests of asbestos claimants that James Hardie is, and remains, financially strong and able to continue to fund its business growth," said chairwoman Meredith Hellicar. "We expect the proposed funding arrangements will allow this as well as fulfil James Hardie's funding commitment."

After it gets word on the tax treatment of the payments, James Hardie will seek approval for the agreement from its lenders and shareholders.

The company's first payment into the new fund will be A$154 million. That compares with Hardie's sales last year of US$1.2 billion and a net profit of US$150 million.

Accountants KPMG estimated in June that Hardie would face claims of about A$3.1 billion over 40 years. It said the net present value of that estimate was A$1.6 billion.

James Hardie's shares, clipped this year by uncertainty over the asbestos deal, last traded up 49Ac to A$8.90 in a weaker market.

The stock has surged 77 per cent since August last year, when the company said the fallout from a New South Wales Government inquiry into its asbestos compensation had led to boycotts of its building products.

The inquiry found that the fund, set up in 2001 with assets of A$293 million, would run dry within three years.

Chief executive Peter Macdonald resigned in October last year after the inquiry found he had misled investors. Chief financial officer Peter Shafron also quit.

Assuming the compensation payments will be tax-deductible, six analysts have a 12-month price target on Hardie's shares of between A$8.50 and A$10.75.

Citigroup and Credit Suisse First Boston estimate tax-deductibility of the compensation payments is worth about 75Ac a share.

James Hardie used asbestos as a fire retardant in its wallboard and other products until Australia banned the material in 1984 because it contains tiny fibres that settle in the lungs and can eventually choke victims to death.

The company was forced to provide more funds after last year's inquiry found that it had misled the public in 2001 about money set aside for asbestos disease sufferers and made the fund seven times too small.

In line with an agreement reached a year ago, the final terms of the deed cap Hardie's annual payments to the compensation fund at 35 per cent of annual net operating cashflow, with provisions for the cap to fall over time depending on the group's performance and the claims outlook.

- BLOOMBERG, REUTERS