Other Asbestos Trusts Should Consider Copying a Share Sale and Capital Raise

24/7 Wall St.

The carryover effect of asbestos and the death and damages from mesothelioma are both still many years away from coming to an end. In fact, some of the new mesothelioma cases may still not even be discovered for another decade or more. Armstrong World Industries Inc. (AWI) has been a public company since after its bankruptcy in late 2006. The Armstrong World Industries Asbestos Personal Injury Settlement Trust and Armor TPG Holdings, under the private equity firm TPG, had more than 50% controlling interest and they are lightening up on the position.

24/7 Wall St. does not view this as a localized or single-entity issue. Our belief is that other asbestos trusts around the country should consider copycat offerings like we have just seen. The company makes and sells flooring products and ceiling systems, and it is still living under the control of its post-bankruptcy under its former employees' asbestos trust and private equity.

Shares were within striking distance of a 52-week high of $58.48, and the chart reads differently than the actual all-time highs because of three one-time dividends of around $27 per share in total since 2006.

What we find interesting about this offering is that it was upsized to 12,057,382 common shares. The previous amount was to be an offering of 10,057,382 shares, an indication of strong demand. One thing helping the demand was that the company stepped up to the plate and bought about half of the offering. Another reason that asbestos trusts might want to consider doing copycat offerings for their mesothelioma patients and future claims is that the $51.75 offering price was never even seen on the downside, and the stock is up from a week earlier and is back at the highest level in months.

Wall Street often makes for a strange partner when it comes to finances. It seems that the investment community is happy to have this much less influence from the former Armstrong World employees and dependents asbestos trust out from the daily workings of the new Armstrong World.

As of December 12, 2013, the Armstrong World Industries Asbestos Trust held more than 25.3 million shares of common stock. The pre-offering control by the trust came to more than 40% of the value of the more than $3 billion market cap of Armstrong World Industries. In short, there are still many shares here that can be sold in the future, and it was refreshing to see a secondary offering this well received by Wall Street.

Also note that Moody's recently issued a negative outlook on Armstrong World's corporate credit rating to reflect that the controlling shareholders are negatively affecting Armstrong's liquidity profile in an effort to enrich themselves. Still, the stock went above its offering price.

You could almost make the argument that asbestos trusts around the country might even be able to use Wall Street to their advantage in this strong stock market. If you run an asbestos trust or are in a mesothelioma class holding many shares of recapitalized post-bankruptcy stocks, you might want to consider looking to see if the Armstrong World situation is applicable to you.

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