How Asbestos Burned ABB

When ABB Ltd. (ABB ) acquired Combustion Engineering Inc. in late 1989, executives of the Swiss industrial powerhouse raised some eyebrows for paying what many believed was too lofty a price. Now, a dozen years later, it's clear that the $1.6 billion in cash that ABB forked out was a mere downpayment.

By buying Combustion Engineering, based in Stamford, Conn., ABB captured a big chunk of the business of designing and building power-generation facilities in the U.S., which is why then-CEO Percy Barnevik said the deal was worth top dollar. However, ABB also picked up Combustion Engineering's liabilities for exposing Americans to asbestos. On Jan. 30, ABB reported that it had to set aside an additional $470 million to cover future asbestos claims, raising its total reserves to $940 million and helping to drag the company into the red in 2001. Deutsche Bank estimates that ABB will have to set aside at least $1 billion more. The asbestos debacle is one more reason why ABB shareholders are attacking Barnevik's legacy.