), which he helped create by merging the pharmaceutical interests of Germany's Hoechst and France's Rh?ne-Poulenc in 1999. Why, then, would this 62-year-old exec want to clean up the horrendous mess at ABB Ltd. (ABB
), the maker of electrical and capital goods? Interviewed at ABB's modest Zurich headquarters, Dormann has a ready answer: "The way I was raised and trained, you don't run away from a challenge."
Rescuing ABB is probably the biggest challenge Dormann has ever faced. Merely reading the financial figures would make any normal boss want to take early retirement. ABB's net debt of $2.6 billion is not far off its puny market capitalization of about $3.2 billion. Its share price has dropped to $2.86 from $33 just three years ago, and ABB faces huge liabilities from asbestos lawsuits. Morgan Stanley estimates ABB lost $161 million in 2002--after losing $691 million in 2001--and it forecasts a net income of only $13 million in 2003.
ABB's very existence is at stake. If Dormann is in over his head, then one of Europe's largest companies, with some $23 billion in sales and close to 150,000 employees, will probably be broken up. But those who have watched Dormann up close give him a good shot at saving a fair-sized chunk of ABB. "If I were allowed to buy the shares, I would," says one executive who knows Dormann well.
Dormann, who took over as ABB's CEO last September, isn't wasting any time. He is close to settling U.S. asbestos litigation that threatened to bankrupt ABB. In December, he wrapped up a tough negotiation with banks led by Citigroup (C
) and Credit Suisse First Boston (CSR
) for a $1.5 billion credit facility that yanked ABB back from the edge.
The big question is whether Dormann can take advantage of the breathing room to reverse a long slide. The company has some world-beaters such as power systems, robots for auto plants, and process controls for heavy manufacturing. But for these to shine, Dormann needs to put the asbestos issue to rest, restore profits, and pay down debt.
Dormann is shedding assets both to raise cash and sharpen the focus. He sold ABB's finance division to General Electric Co. (GE
) in December for $2.3 billion and has put the oil-and-gas and building-systems arms on the block. These units could pull in an additional $2.5 billion or more. Late last year, he lumped ABB's remaining businesses under two banners: power technology and automation. "I am trying to identify our competitive edge," he says. He's also dismantling much of the legacy of Percy Barnevik, the ABB boss whose aggressive expansion left the company saddled with many poor performers and a ruinous exposure to asbestos suits.
The turmoil has yet to damage ABB's vital businesses. "At the customer level, they have not been severely damaged. It's amazing," says Craig D. Resnick, a manufacturing analyst at ARC Advisory Group in Dedham, Mass., which tracks capital-goods makers.
Investors are hoping ABB's strengths will come through even more once the curtain comes down on those asbestos claims, which arise from past practices of Combustion Engineering, a Stamford (Conn.) subsidiary ABB bought in 1990. In a deal worked out with lead plaintiffs' lawyers on Jan. 17, ABB has promised to create a $1.2 billion trust fund to settle claims. To ensure it doesn't get another deluge of lawsuits, ABB plans to put Combustion Engineering into a prepackaged Chapter 11 bankruptcy by the end of February. That would make the pact permanent.
The so-called master settlement needs the endorsement of 75% of plaintiffs. Both sides say the proposal should easily pass, in part because ABB upped the size of its trust fund by $100 million, very generous for a cash-strapped company. But some plaintiffs think the deal unfair and may try to overturn it on appeal, a process that could drag on for years. Dormann will have to deal with ABB's disastrous past for a while longer. By Stanley Reed in Zurich and Michael Arndt in Chicago