Union Carbides War Bhopal and Beyond

In 1989, the Supreme Court permitted Union Carbide Corporation (UCC) to settle its civil and criminal liabilities for the sum of $470 million – an amount which critics attacked as negligible in the context of the disaster. In 1991, the Supreme Court directed UCC to finance a fully equipped hospital for the survivors of Bhopal and UCC proceeded to form the Bhopal Hospital Trust on February 20, 1992. Subsequently, in 1994, the Court allowed UCC to divest its shareholdings in its Indian subsidiary – thereby formally ending UCC’s involvement in Bhopal. This familiar narrative often obscures Union Carbide’s own, ultimately unsuccessful, struggle to survive following the disaster. This feature traces Union Carbide’s path in the markets until its ultimate merger with Dow Chemicals in 2001..Students of tort litigation are probably quite familiar with the Supreme Court of India’s various orders on the Bhopal gas tragedy. Most notably, in 1989, the Supreme Court permitted Union Carbide Corporation (UCC) to settle its civil and criminal liabilities for the sum of $470 million – an amount which critics attacked as negligible in the context of the disaster. In 1991, the Supreme Court directed UCC to finance a fully equipped hospital for the survivors of Bhopal and UCC proceeded to form the Bhopal Hospital Trust on February 20, 1992. Subsequently, in 1994, the Court allowed UCC to divest its shareholdings in its Indian subsidiary – thereby formally ending UCC’s involvement in Bhopal..This familiar narrative often obscures Union Carbide’s own, ultimately unsuccessful, struggle to survive following the disaster. The corporation resorted to a range of corporate maneuvers in order to minimize the impact of the disaster. Those who follow the developments in the courts often ignore the equally fascinating happenings in the corporate boardroom..In the months immediately following Bhopal, UCC stock fell sharply from a trading range of between $50 and $58 to $32-$40. Short selling by speculators accentuated this trend, leaving the company vulnerable to a hostile takeover. Ant this is precisely what happened in 1985, when the GAF Corporation of New York made a bid for UCC. The struggle for corporate control came as a mixed blessing for UCC – shareholder value was arguably unlocked as the stock price reached $96..UCC sought to defend itself from the takeover attempt by selling its very profitable consumer products division. By 1986, UCC had taken significant steps to deter hostile bidders. It had sold assets worth over $3.3 billion and repurchased 38.8 million of its shares, shareholders had received a total of $1.1 billion in cash and a three-for-one stock split. Not content with rewarding its shareholders, UCC appears to have gone an extra mile in making itself an unattractive target – it had assumed nearly $3 billion in debt. Having offered $74 per share, GAF finally decided to withdraw its bid in early 1986. The restructured Union Carbide now had three divisions – Chemicals and Plastics, Industrial Gases, and Carbon Products..There had also been significant changes in personnel. Warren Anderson had given way to a new CEO, Robert Kennedy, and the Indian subsidiary too saw personnel turnover – Chairman Keshub Mahindra, and the Bhopal Factory Manager, J. Mukund, moved on to new positions. In certain senses, UCC had made a partial metamorphosis by 1986. This process was taken further by a change in the company’s market positioning – UCC now sought to match other chemical giants such as Du Pont by diversifying..Yet diversification would prove to be a challenge in the wake of the resource-draining takeover defense that UCC had presented. There were relentless efforts to streamline the corporation and by 1988, these had yielded a significant measure of success so that earnings per share now stood at an all-time high of $4.38 per share, including a charge of $0.43 per share for the Bhopal litigation. Nevertheless, by 1991, debt still remained at 50 per cent of capitalization and sales were $7.35 billion. In 1992, UCC sold its Linde Gas Division for $2.4 billion, leaving the company at less than half its pre-Bhopal size..In the end analysis, Bhopal extracted a significant toll on UCC’s financial strength. Its pre-tax profits per employee stood at less than half of its competitors such as Dow Chemicals. Management studies would point to UCC’s smaller size, lack of diversity and low employee morale as significant weaknesses..In February 2001, UCC bowed to the inevitable. Its long-time competitor, Dow Chemical, agreed to acquire UCC for $11.2 billion and the assumption of $2.3 billion in debt. UCC shareholders would receive 0.537 shares of Dow for each share of Union Carbide. On disclosure of the news, Union Carbide rose $10.5625, or 21.6 percent, to $59.375 per share, finally back to the range at which it had been trading before Bhopal. Dow fell $6.0625, or 5 percent, to $118.625 per share. It is small comfort to the victims that, like thousands of others, UCC never quite recovered from the toxic leak at Bhopal..(Some of the material for this page has been sourced from Paul Shrivastava’s comprehensive online resource at http://www.unu.edu/unupress/unupbooks/uu21le/uu21le0c.htm#struggle%20for%20compensation)