From NBC News (Gretchen Morgenson):
…there’s a risk that [Robin Andrews] and other people with illnesses linked to the chemicals could end up with no compensation for their health problems. That’s because a major manufacturer, DuPont, recently unloaded its PFAS obligations to smaller companies that do not have the money to pay for them.
For decades, DuPont manufactured PFAS-type chemicals in a plant close to Andrews’ home in this tiny South Jersey town on marshy land near the Delaware River. Her grandfather and father both worked at the sprawling plant, known as the Chambers Works, which covers 1,400 acres of riverbank in the shadow of the bridge to Delaware.
In 2017, after she developed unexplained high liver enzymes, her well water tested positive for PFAS; she now runs it through a large filtration system in her basement and has it monitored every three months.
DuPont “could have been a great company and a very good thing for this area had they chosen to take care of people and to be responsible with the way they disposed of these toxins,” Andrews told NBC News. “But they weren’t. I believe it was an economic decision to put people at risk.”
Jeff Tittel, senior chapter director of the New Jersey Sierra Club, has watched DuPont’s moves with concern. “They are setting up other companies to take the fall on liabilities that won’t have enough money, so even if people win lawsuits, they will get nothing or very little,” he said.
PFAS are not regulated by the Environmental Protection Agency under the Safe Drinking Water Act and their side effects are still being understood by scientists and the public. In February, the EPA put out a proposal to regulate two of the most common PFAS chemicals found in drinking water and is asking for comment on how to monitor them.
On Wednesday, the EPA disclosed it “has multiple criminal investigations underway concerning PFAS-related pollution.” The agency did not identify the entities being investigated and it could not be determined if DuPont is one of them.
Daniel Turner, reputation and media relations manager for DuPont, said the company had not received an information request from the EPA related to a criminal investigation…
In 2015, as problems associated with PFAS were becoming clearer, DuPont began a series of complex transactions that transformed the company’s structure. As a result of the transactions, responsibility for environmental obligations associated with the chemicals shifted onto other entities.
The first shift by DuPont occurred in 2015, when it assigned the great majority of liabilities associated with PFAS to The Chemours Company, a new entity containing DuPont’s chemicals business that was spun off to its shareholders…
In a statement provided to NBC News, DuPont spokesman Turner denied that the Chemours spin-off was an attempt to evade environmental and legal liabilities associated with PFAS. “The reason for the spin-off,” Turner said, was that DuPont “was seeking to transform itself into a higher growth, higher value company” and “saw more growth opportunities in its other businesses.”
A second spin-off was Corteva Inc., in 2019, an agriculture science company that holds other legacy DuPont operations and some PFAS liabilities.
The third transaction occurred last June when so-called new DuPont was created. Formerly known as DowDupont, its businesses include electronics, transportation and construction. Because of the two other spin-offs, new DuPont is two steps removed from PFAS obligations…
Chemours, with primary responsibility for the estimated tens of billions of dollars in PFAS obligations, does not have anywhere near the money or assets to cover them. Chemours’ net worth — its assets minus liabilities — stood at just $695 million as of Dec. 31, 2019.
If Chemours becomes insolvent, Corteva Inc. will be responsible, corporate filings show. Corteva does not have the funds to cover tens of billions in estimated PFAS costs either. Turner declined to say whether PFAS responsibilities would ultimately revert to DuPont if Chemours and Corteva are unable to pay them. A lawyer for Chemours declined to comment.
Corporate spin-offs like DuPont’s that transfer liabilities associated with problematic businesses are becoming more common, analysts say, especially in the energy and chemical fields.
“You’re seeing it again and again,” said Clark Williams-Derry, an analyst with the Institute for Energy Economics and Financial Analysis. “Spinning off your legacy liabilities into a separate corporation and to some other responsible party appears to be part of the standard playbook in these industries.”
DuPont is not the only PFAS manufacturer under scrutiny. Another is 3M, headquartered in Minneapolis. Both companies stopped making PFAS over a decade ago. 3M is fighting the suits and says it is cooperating with government investigators.
DuPont and 3M both face lawsuits over problems allegedly linked to PFAS. But DuPont’s shift of its PFAS liabilities to Chemours has drawn its own raft of litigation. In a complaint filed last year against DuPont by Chemours, it contended that the 2015 deal was fraudulent. DuPont knew and intentionally hid the scope of the liabilities when it dumped them into Chemours, the company alleged.
In response, DuPont says Chemours executives were well aware of the PFAS problems at the time of the spin-off and could not have been duped. Next up is the judge’s ruling on oral arguments in the case…
Legal filings allege DuPont knew for decades that PFAS posed a threat to humans…
In early PFAS cases, lawyers for plaintiffs found internal, undisclosed DuPont documents showing toxicity in PFAS. While the company has acknowledged the findings in court filings, it argued that they were either inconclusive or applicable only to employees working with the chemicals, not to people drinking tap water near DuPont facilities.
The New Jersey lawsuit alleges that DuPont began to recognize toxicity in the most common PFAS chemical in the 1960s but did not tell the state or local communities about the problem.
DuPont has not answered the New Jersey complaint but in previous lawsuits, DuPont has denied that it hid PFAS risks. DuPont spokesman Turner declined to say how long DuPont knew about the toxicity of PFAS, but said the company has provided extensive information over the years to the EPA about potential harm related to the chemicals.
The New Jersey suit also says DuPont hid the results of a 1981 blood sampling study of pregnant employees who worked with the chemicals that found one-quarter had children with birth defects…
The potential that shareholders will take on undervalued liabilities is greater in spin-offs, merger experts say. That’s because the kind of in-depth due diligence that a third-party buyer would do to to determine possible liabilities is not typically done by new owners in a spin-off. Those owners are essentially trusting the parent company to be forthcoming about the obligations.
Had DuPont instead sold its legacy chemicals businesses to another company, the buyer would have dug into the obligations associated with its PFAS production prior to the purchase. Any resulting deal would take those potential liabilities into account, resulting in either a lower sale price, an insurance policy or a right by the buyer to recover costs from DuPont later.
Because DuPont’s existing shareholders took on the liabilities in the Chemours and Corteva spin-offs, that detailed assessment was not done. The Chemours lawsuit alleges that DuPont pursued the spin-off so it “could control the transaction structure and economics” after concluding that “no rational buyer” would accept the liabilities associated with PFAS.
DuPont spokesman Turner disputed this, saying that multiple firms submitted proposals to acquire Chemours before the spin-off. He declined to provide specifics about those companies, however, or their bids.
Back in 2015, when DuPont was preparing to spin off Chemours, the parent company made insufficient disclosures about the environmental liabilities to be shouldered by the new shareholders, the Securities and Exchange Commission found. The company had to provide more details, regulatory filings show.