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Takata plea, compensation deal clears path to potential sale
February 28, 2017 / 10:49 AM / 9 months ago

Takata plea, compensation deal clears path to potential sale

DETROIT (Reuters) - Japan’s Takata Corp removed a major obstacle to its potential sale or restructuring, pleading guilty on Monday in a U.S. federal court to a felony charge as part of a $1 billion settlement that included compensation funds for automakers and victims of its faulty airbag inflators.

FILE PHOTO - A billboard advertisement of Takata Corp is pictured in Tokyo September 17, 2014. REUTERS/Toru Hanai/File Photo

U.S. District Court Judge George Steeh approved the previously agreed settlement, despite objections from lawyers for victims of Takata inflator explosions that the criminal settlement identified automakers as victims of fraudulent activity.

Steeh said automakers could be victims of Takata’s decisions to hide evidence over 15 years that its inflators were defective and still be subject to civil litigation for harm done to individuals.

With the criminal settlement and penalties set in the United States, where the majority of air bag-related fatalities and injuries have occurred, Takata is expected to continue its search for a buyer or financial backer, a process which has dragged on for a year.

“Achieving a plea bargain in the United States shows some progress, and could help to revive stagnated talks in Japan,” SBI Securities senior analyst Koji Endo said in Tokyo.

Any deal will require agreement with its automaker clients over whether Takata’s restructuring should be managed privately, or through the courts, a sensitive issue for the founding Takada family, which holds a majority stake in the company.

Steeh said he considered imposing a stiffer sentence, noting federal guidelines allowed for up to $1.5 billion in fines. But the judge said he approved the settlement because Takata could otherwise be pushed into bankruptcy, delaying efforts to replace millions of potentially deadly inflators still on the road.

“Destruction of the corporation would probably have been a fair outcome in this case,” Steeh said, adding he had been involved in a separate case in which Takata had admitted to price fixing.

Lawyers for U.S. vehicle owners have sued Honda Motor Co, Nissan Motor Co, BMW AG, Ford Motor Co, Mazda Motor Corp, Toyota Motor Corp and other automakers, alleging they knew about the defective Takata inflators for years but kept using them.

Lawyers for vehicle owners said in a court filing on Monday in Florida that automakers acted “recklessly” because “they were focused on the low price of Takata’s inflators and concerned that if they stopped using Takata’s inflators, they might not have a sufficient supply.”

Honda said in a statement the filing was “misleading”, adding that “the suggestion that Honda chose to use Takata airbag inflators - despite knowing of the risk of rupture - because they were less expensive than other inflators is categorically false.”

Toyota and Nissan declined to comment on the filing.

At least 16 deaths have been linked to exploding Takata inflators. The defects have led 10 automakers to recall more than 31 million cars worldwide since 2008. All but one of the deaths have occurred in Honda vehicles.

The automakers could face costs to replace all the defective airbags “that would be 5, 6 or 9 times the $850 million” set aside in the fund, Steeh said, indicating the total replacement cost could be more than $7.6 billion. The Takata airbag recall is the largest ever for the auto industry.

In January, Takata agreed to establish two independently administered restitution funds: one for $850 million to compensate automakers for recalls, and a $125 million fund for individuals physically injured by Takata’s airbags who have not already reached a settlement with the company.

U.S. senators called for more compensation for victims and voiced their opposition to automakers receiving any payments, arguing that Monday’s filing in Florida raised the possibility of their “possible complicity in Takata’s fraud”.

“No automaker should receive a single dollar until we fully understand their involvement in this fraud and how they so massively failed to protect their customers,” they said in a statement.

“While today’s guilty plea from Takata is welcome news, this is not nearly the end of this sad saga.”

Automakers in the United States are set to continue recalling defective inflators through 2020. U.S. safety regulators have said automakers are responsible for replacing defective airbags no matter what happens to Takata.

TURNAROUND EFFORT

Takata is seeking financial backers as it faces potentially billions of dollars in recall-associated costs. It has not identified what company has been selected by a steering committee leading that process.

Key Safety Systems (KSS), a Chinese-owned auto supplier, is the leading candidate, people familiar with the process said in early February. A person briefed on the matter told Reuters on Monday a decision may be reached by the end of March.

Takata has denied investor speculation that it would have to seek some form of bankruptcy protection in the United States or Japan. However, during the court hearing, Judge Steeh and lawyers for the Justice Department alluded to the potential for Takata to collapse if it could not find a buyer.

As part of the agreement with U.S. authorities, Takata has agreed to pay a $25 million fine and has 30 days to pay the $125 million for victim compensation.

Takata has up to a year to deliver the remaining $850 million for automaker compensation. If a financial backer takes control of Takata, however, the money for the automakers must be delivered within five days. Reuters had reported in November that Takata may file for bankruptcy as part of a restructuring.

Reporting By David Shepardson in Washington and Joseph White in Detroit; Additional reporting by Naomi Tajitsu and Maki Shiraki in Tokyo; Editing by Meredith Mazzilli and Muralikumar Anantharaman

Our Standards:The Thomson Reuters Trust Principles.
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