Cloud Lifts for American Ecology : Lawsuits: Years of legal problems over leaks seem to be ending for the hazardous-waste dump operator as it moves toward opening a new site.
One of the spinoffs engineered by Henry E. Singleton, the chairman of Teledyne Inc. who is renowned for his large-scale shuffling of assets, occurred in 1984 when he spun off Teledyne’s waste-disposal businesses to form American Ecology Corp.
American Ecology operates dump sites for chemical and radioactive wastes, and Singleton and his staff were worried about American Ecology’s potential legal liabilities because the company faced lawsuits stemming from leaks at some of its waste dumps.
For much of the 1980s those claims against American Ecology left a cloud of uncertainty hanging over the Agoura Hills-based company. No one was sure how much American Ecology would have to pay to help get the sites cleaned up. The company’s stock price veered one way, then the other, as speculation about American Ecology’s legal liability kept changing.
Now, however, the cloud is lifting. Most of the litigation is behind American Ecology. The company is nearing approval to open a new site for dumping low-level radioactive waste in the Mojave Desert, an operation that would boost its annual revenue--which totaled $48.7 million last year--about 20%. The company also has divested its loss-ridden solid-waste disposal business, and its remaining operations are performing better.
“We’re more efficient, we’ve cut our losers,” said William E. Prachar, who left as Teledyne’s corporate counsel to become American Ecology’s chief executive. American Ecology’s profit for the first half of 1991 jumped 71%, to $2.43 million from $1.42 million, as its revenue climbed 10% to $24.5 million from $22.2 million.
All of which has Wall Street taking notice. American Ecology’s stock price, which began the year at $6.75 a share, has more than doubled since then, closing Monday at $14.75 a share in national over-the-counter trading. That’s still well below the stock’s high of $50 reached in 1986, however.
The company’s outlook has improved at the same time that a Houston investor, Harry J. Phillips Jr., is poised to take control of American Ecology. Phillips’ Ecol Partners Ltd. last week effectively bought a controlling 52% stake in American Ecology from Browning-Ferris Industries Inc. for $16.6 million, under a previously announced agreement.
Phillips purchased convertible debt securities, preferred stock and warrants which, if all were converted into common stock, would give him control of the company. (The debt and preferred stock Phillips bought can be converted into the stock at $15 a share--near where the stock now trades--until August, 1992.)
Phillips also said that while “there’s potential for liability in all of the companies involved” in hazardous-waste collection, the outlook for American Ecology is clearer than it has been in several years.
“The company has been undervalued for a long time because of this cloud” of litigation, he said. “I think their earnings and growth potential are very strong, or obviously I wouldn’t be investing.”
Prachar said he welcomes Phillips’ involvement and plans to nominate him as a director at the company’s next board meeting Aug. 8.
The most onerous legal burden that had beset American Ecology involved the company’s chemical and radioactive waste sites in Sheffield, Ill. The neighboring sites leaked toxic wastes into the nearby environment, and were closed between 1978 and 1983. State officials went to court seeking American Ecology’s help in cleaning up the sites.
In 1988, the company settled the case involving its radioactive waste dump at Sheffield, agreeing to spend about $8 million to clean up and maintain the site. And last year, American Ecology and the U.S. Environmental Protection Agency reached an agreement that gave the company a specific cost for controlling ground and water contamination at its nearby chemical waste dump in Sheffield. The cost: $13 million over 30 years.
But Illinois officials pressed their legal case to get American Ecology to remove all of the wastes and contaminated soil and water at Sheffield, steps that could cost the company substantially more. Last month, an Illinois state judge ruled that those claims are preempted by the EPA action. However, Illinois is appealing that ruling.
Meanwhile, American Ecology hopes to start operating its proposed nuclear dump in Ward Valley in the Mojave Desert near Needles and the California-Nevada border by the end of 1992. The company has been working on the proposal since 1984, and the $30-million dump must still be licensed by the state Department of Health Services, which last week held the latest round of public hearings about the site.
A decision on the license is likely in the fall or winter, said Jack McGurk, chief of the department’s environmental health division.
It’s the kind of dump that would receive so-called low-level radioactive waste such as contaminated tools and clothing from nuclear power plants, along with filters, rags and radioactive medical supplies from hospitals. Unlike some highly radioactive waste products that take thousands of years to decompose, these lower-level radioactive products decompose in a much shorter time, perhaps 50 to 300 years.
American Ecology, and even some environmentalists, have said that Ward Valley is a good site for the dump because of its distance from populated areas, light rainfall and deep ground-water level, which is 700 feet below the surface.
There’s public concern nonetheless. State officials, for instance, want assurance that California taxpayers would not be liable if the site leaked. Prachar said the officials have indicated that they might hold up the necessary transfer of the site’s property from federal to state ownership until those problems are settled.
Prachar figures the new California dump might add $3 million or more to the company’s annual net income.
The American Ecology stake that Phillips bought was originally acquired by Browning-Ferris in 1989 to give American Ecology a badly needed cash infusion. But Browning-Ferris recently decided to shed all of its interests in hazardous-waste disposal, including its American Ecology stake.
Phillips, 41, said he took up investing full time in 1989 after leaving Browning-Ferris, where he had worked 17 years, most recently as an executive vice president and director. His father, Harry J. Phillips Sr., is a former chief executive of Browning-Ferris and remains on its board.
The younger Phillips downplayed his potential impact on American Ecology, giving no hint of how he might try to influence the company’s performance. He said Ecol Partners had yet to decide when and if to convert its holdings into American Ecology common stock, or even how it might gain representatives on the company’s board, which now has five directors.
He did say that if it was up to him, “I would most definitely keep” Prachar and American Ecology’s other current management.
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