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Author: igodard Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27  
Subject: KAB :Reposts from 11Wall (part 5) Date: 12/15/1999 9:42 AM
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The message below and the following discussion was posted at http://www.11wall.com and might be of interest here.

11Wall is a moderated discussion board. As such it has no spam or flame wars and is generally civil and thoughtful. You might visit if postings like this interest you, whether you agree with them or not. I don't read here, so please post any responses at 11Wall.
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TC, Lho39: KAB environmental risks...

The Wall Board: Stocks (Misc): STOCKS NOT OTHERWISE LISTED: TC, Lho39: KAB
environmental risks...

By Igodard on Sunday, December 5, 1999 - 06:24 pm:

[The cloud is the potential superfund environmental claims and I am not as sanguine about
them as Ivan is. ]

I am sanguine for three reasons:

1) The EPA is not in fact after KAB, they are after Grace. Grace is suing to recover what it
pays the EPA. I suspect that Grace already tried to get KAB included as an EPA party and
failed, and is now trying the suit to see if a court is more malleable than the EPA.

2) Naturally for someone in the business, KAB has had various environmental problems in
the past. The 98 10K lists one - a 1kbbl hole in their West pipeline. They seem to have
handled these all in exactly the same way - prompt and complete notification to all the
agencies, followed by immediate remediation using their own top-notch industrial services
operation. In short, they wear white hats. They know the EPA, and the EPA knows them well
and favorably too, and probably uses their services in some of the unrelated cleanups.

Grace has a reputation for stonewalling and lawyers, and I'm sure the green hats in the EPA
will screw Grace if possible . In contrast I expect that anything that comes down between the
EPA and KAB will be (and in the Grace case was) treated in about the most favorable light
possible by the agency.

KAB has no such leverage with the court. The matter hinges on whether KAB bought an
abandoned pipeline, never since used and not carried on its books, when it bought a tank
farm 25 years ago from Grace. This could go either way of course, but I suspect that the
court will weigh the EPA attitude highly. However, assume the worst, and KAB is found to
own the line and hence the environmental problem.

They list the potential costs at around $55M high. Of this Grace has a blanket guarantee of
$10M. In addition, KAB would then have an action for fraudulent transfer against Grace,
which I'm sure they will get filed as soon as the summary judgements are out of the way.
Grace has a lot of these things happening (they were real pigs and it cought up with them)
and their lawyers know all the ins and outs (witness the suit), so they will drive a hard bargain.
Say the costs are at the high end and they settle 50-50. This takes at least five years to do.
KAB is out $27M plus maybe a $5M legal bill.

Now look at this worst case impact on KAB. To begin with, 2/3rds of the cost goes to KPP,
not KAB. One third of the remainder disappears in tax not paid. Result: a $10-11M hit five
years from now. I calls it a chicken feed special charge that would be shrugged off by the
market.

YMMV

Disclosure: accumulating

Ivan
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