Takata shares soar af­ter $1-bil­lion airbag set­tle­ment

The Globe and Mail (Prairie Edition) - - GLOBE INVESTOR WEEKEND - PAUL LIENERT DETROIT DAVID SHEPARDSON WASHINGTON

Ja­pan’s Takata Corp. on Fri­day agreed to plead guilty to crim­i­nal wrong­do­ing and pay $1-bil­lion (U.S.) to re­solve a U.S. Jus­tice Depart­ment in­ves­ti­ga­tion into rup­tures of its airbag in­fla­tors linked to at least 16 deaths world­wide.

Takata will pay a $25-mil­lion fine, $125-mil­lion in a vic­tim-com­pen­sa­tion fund, in­clud­ing for fu­ture in­ci­dents, and $850-mil­lion to com­pen­sate auto mak­ers for mas­sive re­call costs, the Jus­tice Depart­ment said. The au­toparts sup­plier will be re­quired to make sig­nif­i­cant re­forms and be on pro­ba­tion and un­der the over­sight of an in­de­pen­dent mon­i­tor for three years.

The com­pany’s shares rose 16.5 per cent in trad­ing in Ja­pan on news of the ex­pected set­tle­ment, in which it agreed to plead guilty to a sin­gle felony count of wire fraud.

The set­tle­ment could help Takata win fi­nan­cial back­ing from an in­vestor to po­ten­tially re­struc­ture and pay for mas­sive li­a­bil­i­ties from the world’s big­gest au­to­mo­tive-safety re­call.

“Reach­ing this agree­ment is a ma­jor step to­wards re­solv­ing the airbag in­fla­tor is­sue and a key mile­stone in the on­go­ing process to se­cure in­vest­ment in Takata,” Shige­hisa Takada, chair­man and chief ex­ec­u­tive of Takata, said in a state­ment.

He added that the com­pany “deeply re­grets the cir­cum­stances that have led to this sit­u­a­tion and re­mains fully com­mit­ted to be­ing part of the so­lu­tion.”

Start­ing in 2000, Takata sub­mit­ted false test re­ports to auto mak­ers to in­duce them to buy faulty airbag in­fla­tors, ac­cord­ing to the Jus­tice Depart­ment. Takata made more than $1-bil­lion on the sale of the in­fla­tors and Takata ex­ec­u­tives fab­ri­cated test in­for­ma­tion about their per­for­mance, the depart­ment said in a state­ment.

A fed­eral grand jury separately in­dicted three long-time Takata ex­ec­u­tives, all Ja­panese cit­i­zens, over the de­fec­tive airbag in­fla­tors af­ter a more than two-year U.S. crim­i­nal in­ves­ti­ga­tion.

Shinichi Tanaka, Hideo Nakaji- ma and Tsu­neo Chikaraishi were in­dicted on wire fraud and con­spir­acy charges for al­legedly per­suad­ing auto mak­ers while at the sup­plier to buy “faulty, in­fe­rior, non-per­form­ing, non-com­pli­ant or dan­ger­ous in­fla­tors through false re­ports.”

The Jus­tice Depart­ment said the three were sus­pended in 2015 and are not cur­rently work­ing for Takata. The six-count in­dict­ment, un­sealed on Fri­day, said they knew around 2000 that the in­fla­tors were not per­form­ing to auto mak­ers’ spec­i­fi­ca­tions and were fail­ing dur­ing test­ing, but they pro­vided false test re­ports to auto mak­ers.

The in­fla­tors can ex­plode with ex­ces­sive force, launch­ing metal shrap­nel at pas­sen­gers in cars and trucks. Many of those killed were in­volved in low-speed crashes that they oth­er­wise may have sur­vived. To date, 11 deaths and 184 in­juries have been linked to the in­fla­tors in the United States.

“Au­to­mo­tive sup­pli­ers who sell prod­ucts that are sup­posed to pro­tect con­sumers from in­jury or death must put safety ahead of prof­its,” U.S. lawyer Bar­bara McQuade said in Detroit.

“If they choose in­stead to en­gage in fraud, we will hold ac­count­able the in­di­vid­u­als and busi­ness en­ti­ties who are re­spon­si­ble,” Ms. McQuade said.

The com­pany has 30 days to pay the $150-mil­lion for vic­tim com­pen­sa­tion and the crim­i­nal fine and then up to a year to pay the rest.

In re­cent years, the Jus­tice Depart­ment has had an un­prece­dented num­ber of crim­i­nal in­ves­ti­ga­tions into wrong­do­ing by auto mak­ers and sup­pli­ers, reach­ing ma­jor set­tle­ments with Toy­ota Mo­tor Corp., Volk­swa­gen AG and Gen­eral Mo­tors Co., among oth­ers.

The Jus­tice Depart­ment said it had rec­om­mended to­gether with Takata that Ken Fein­berg, a com­pen­sa­tion ex­pert, over­see the auto maker and vic­tim-com­pen­sa­tion funds.

The re­calls have af­fected 19 auto mak­ers to date.

Reg­u­la­tors have said re­calls would even­tu­ally af­fect about 42 mil­lion U.S. ve­hi­cles with nearly 70 mil­lion Takata airbag in­fla­tors, mak­ing this the largest U.S. au­tosafety cam­paign ever.

Reg­u­la­tors ex­pect it will take at least an­other three years to be­gin all of the re­calls; just 12.5 mil­lion in­fla­tors have been re­paired to date.

A spokes­woman for the U.S. At­tor­ney’s Of­fice in Detroit said it was not clear where the three ex­ec­u­tives in­dicted were cur­rently re­sid­ing, or if they had lawyers. They do not yet have a date to ap­pear in court.

In 2015, Takata ad­mit­ted in a sep­a­rate $70-mil­lion set­tle­ment with U.S. auto-safety reg­u­la­tors that it was aware of a de­fect in its airbag in­fla­tors but did not is­sue a timely re­call.

The set­tle­ment will only pro­vide a frac­tion of the money for auto mak­ers who have been forced to re­call mil­lions of ve­hi­cles with the de­fec­tive in­fla­tors. All but one of the 11 U.S. deaths have taken place in Honda Mo­tor Co. ve­hi­cles. The Ja­panese auto maker and Takata have set­tled nearly all law­suits filed in con­nec­tion with fa­tal crashes.

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