Losing S&P slot deals blow to O-I

12/6/2000

More stock woes are likely for Toledo's second largest corporation, Owens-Illinois, Inc., which has been dropped from the Standard & Poor's 500 index.

The action by S&P on Monday will result in a sell-off by mutual funds whose portfolios buy stocks that reflect the benchmark S&P 500 list. Such action could further harm O-I's stock value.

It is the second northwest Ohio firm to be removed from the S&P index in just over two months.

The first was Owens Corning, Toledo's third largest firm which was removed in September, about a week before it filed for federal bankruptcy court protection because of rising asbestos-injury claims and slumping sales.

Three of the four companies bounced from the stock index this week face serious asbestos liability claims.

O-I executives have insisted their asbestos claims are under control, and the Fortune 500 firm is not headed toward bankruptcy.

Eric Bosshard, an analyst with Midwest Research in Cleveland, said the S&P ouster was made because the low value of the company, reflected in stock price multiplied by the outstanding shares, known as market capitalization.

``It's more a commentary about their market cap than about their earnings prospects,'' Mr. Bosshard said, adding that he was not surprised. ``It's more of an image thing.''

John Hoff, O-I spokesman, said, ``We had no warning. It isn't entirely surprising, but it's a reflection of something we already knew, and that is, that our stock is trading at a very low price.

``In the long run the key question is can we continue to manage our asbestos liability and do we have good growth opportunities? We think the answer to both of those questions is yes.''

Officials of the $5.8 billion Toledo business said the S&P removal was not unexpected and will not significantly hurt the firm's financial performance long term.

Standard & Poor's said it dropped O-I and the other companies because it no longer considers them representative of the industries in which they operate.

Shares of O-I plummeted yesterday to $2.94 a share after gaining some strength by Monday to close at 4 p.m. at $4.06.

Trading of the stock was about four times normal at 3.6 million shares of the New York Stock Exchange.

The company based in One Seagate downtown has been on the S&P 500 list since August, 1997.

Fueled by concerns about O-I's potential liability by asbestos injury claims, investors have been dumping its stock.

The price dropped below $2.50 on Nov. 29 in what was believed to be an all-time low in O-I's 97-year history and its lowest level since the manufacturer re-emerged as a public company in 1991.

Mr. Hoff of O-I said the companies removed this week from the S&P index all had low market values, with stocks trading at under $5 a share - Bethlehem Steel Corp., W.R. Grace & Co., and Crown Cork & Seal Co. Each had market capitalization of under $600 million, Mr. Hoff said. The average market cap of stocks on the S&P 500 is $80 billion.

With the removal of Crown Cork & Seal, an O-I competitor, there are no representatives of the glass and plastic container industry on the S&P 500.

However, the ouster will result in the elimination of O-I stock from several mutual funds that track the S&P 500, much like what happened to Owens Corning.

Mutual funds used by thousands of pension and 401(k) plans, as well as individual investors, are invested in such index funds that by definition must reflect the stocks within it.

Vanguard Group, which maintains two funds that list O-I among its stocks, and Fidelity Investments, which list O-I as a part of three funds, predicted a sell-off shortly.

“Our fund is passively managed to reflect the S&P 500,'' said Katherine Hynes, a spokesperson for the Vanguard Group. ``When [S&P] announce changes, we generally change our fund to reflect that.''

A spokesperson for Fidelity Investments said its funds that track the 500 index operate the same way, but that the decision by other funds to keep or sell O-I is up to the individual fund managers.