Halliburton quagmire haunts ex-CEO Cheney

WASHINGTON - Vice President Dick Cheney, who boasted on the campaign trail of his success as chief executive officer at the Halliburton Co., has watched the biggest business deal of his corporate career turn into a quagmire that could haunt the Dallas oil field services company for years.

When Cheney negotiated the $7.7 billion acquisition of longtime rival Dresser Industries Inc. during a south Texas quail hunt in 1998, he saddled Halliburton with a mammoth liability over injuries to workers using asbestos products Dresser had manufactured.

Halliburton officials now say that they thought they were legally protected against the claims and were ultimately insured for their costs, but the company's protections seem to be failing. Documents related to Dresser show that Cheney and Halliburton management either underestimated, disregarded or ignored the looming legal risk in acquiring the company.

Some of those risks were clearly spelled out in internal Dresser records, available in court files, that would normally be scrutinized before such a deal was sealed.

'Win-win' merger

When it was announced, Cheney called the merger a "win-win" for shareholders and "one of the most exciting things I've ever done." But the deal astounded trial lawyers then involved in lawsuits against Dresser and a related company. "I was absolutely blown away when Halliburton bought Dresser," said Frederick Baron, a Dallas attorney with hundreds of clients suing Dresser.

As Cheney last week made clear his willingness to serve a second term on the Bush ticket, Halliburton remains under scrutiny by the Securities and Exchange Commission for aggressive accounting methods used during Cheney's tenure. The company counted uncollected debt as revenue, an accounting method that it contends was widely accepted in the industry. Halliburton has said it did nothing wrong.

Halliburton now estimates its overall asbestos exposure at $2.2 billion, about $1.6 billion of that covered by insurance. Trial lawyers question the estimate, and insurance disputes raise doubts about coverage. Halliburton's stock has taken more than a $4.5 billion hit from asbestos woes, according to industry analysts.

Cheney and his management team compounded Halliburton's liability by deeply integrating Dresser into Halliburton, rather than creating a subsidiary. As a result, asbestos costs and liabilities are part of Halliburton's bottom line.

In 1998, Halliburton's acquisition of Dresser made sense to Wall Street. Oil prices had dropped, and the six major companies that provided engineering and materials to the oil industry had merged into three.

"You have to understand," said Fred Mutalibov, an analyst at SWS Securities, "it was fast times in the oil services industry." When the Dresser deal was announced, Cheney emphasized the merger's "outstanding business and cultural fit," extending beyond both companies' Dallas roots.

Donald Vaughn, Dresser's president before the merger who then became vice chairman of Halliburton, said that Cheney and Dresser's chief executive officer were so knowledgeable about the companies that the vetting process, known as "due diligence," was "easier and shorter" than usual. "Both companies felt we could accomplish that due diligence in a very short order," Vaughn said.

Vaughn, who retired in 2001, said Halliburton's asbestos problem was "unforeseeable" in 1998. "There was absolutely no sense in Dresser (in 1998) that we were in a new and emerging legal exposure" on asbestos, he said.

Cheney's spokeswoman, Mary Matalin, gave a different version of the due diligence. She said the review was conducted "by highly qualified subject-matter experts. Large teams, including accounting and risk-assessment experts, examine all issues in detail and submit them to numerous levels of review before presenting their findings to the board of directors and CEO." Dresser had close ties to a family Cheney knew well: the Bushes. Cheney's boss while he served as Secretary of Defense, president George H.W. Bush, was once being groomed to run Dresser, a company that Bush's father and grandfather had reshaped decades earlier.