Johns-Manville

Johns-Manville is an American company that manufactures insulation and roofing products, but it holds a legendary, almost notorious, status in the investment world. It serves as the ultimate case study in how a profitable, industry-dominating “blue-chip” company can be felled by a single, catastrophic risk hiding in plain sight. For decades, Johns-Manville was a leader in building materials, many of which contained asbestos. When the lethal health consequences of asbestos exposure became undeniable in the 1970s, the company was hit with an avalanche of personal injury lawsuits. This tidal wave of Asbestos Litigation became a liability so immense that it threatened to swallow the entire enterprise. In a landmark and controversial move, the company filed for Chapter 11 bankruptcy in 1982, not because its factories weren't making money, but because its legal obligations were infinite. The story of its collapse and eventual re-emergence is a masterclass for investors on risk, value, and the art of sifting through corporate wreckage to find treasure.

For most of the 20th century, Johns-Manville was an industrial titan. Its products were everywhere, from homes to naval ships. Asbestos was its miracle ingredient—a cheap, durable, and fire-resistant fiber that made its insulation and construction products superior. The company enjoyed a wide economic moat, with strong brand recognition and dominant market share. However, this success was built on a fatal foundation. For decades, evidence mounted about the link between asbestos fibers and deadly diseases like mesothelioma and asbestosis. This created a colossal, off-balance-sheet liability. Unlike a simple debt that is clearly recorded on a company's Balance Sheet, this risk was a shapeless, growing monster. When the lawsuits began to accelerate, investors realized the true cost of this “miracle” material, and the company's future was thrown into doubt.

The 1982 bankruptcy filing was revolutionary. At the time, Johns-Manville was still operationally profitable. Filing for Chapter 11 while still technically solvent was a desperate, strategic move to pause the litigation onslaught and figure out a way to survive. The solution was equally groundbreaking: the creation of the Manville Personal Injury Settlement Trust.

• The company effectively split itself in two. The healthy, ongoing operating business was separated from the toxic legacy of its past.
• To fund the Trust and compensate victims, the company contributed a large sum of cash and, critically, a majority of the stock in the newly reorganized Johns-Manville corporation.

This legal innovation “ring-fenced” the asbestos liability. It created a defined mechanism to handle all present and future claims, allowing the operating business to emerge from bankruptcy in 1988, free and clear to focus on making and selling products.

The post-bankruptcy Johns-Manville became a classic Special Situation Investing opportunity. The company was now cleansed of its primary existential threat, yet its name was still synonymous with “asbestos” and “bankruptcy.” This stigma caused the market to undervalue the healthy, underlying business.

Years later, this disconnect between perception and reality attracted the world's most famous value investor. In 2001, Warren Buffett's Berkshire Hathaway acquired Johns-Manville. Buffett saw what the fearful market was missing:

1. A Good Business: At its core, Johns-Manville was a simple, durable business with excellent products and strong market positions in roofing and insulation—a classic Buffett-style company.
2. A Solved Problem: The asbestos problem, while tragic and enormous, was no longer an unknown or infinite liability for the corporation itself. It had been quantified and contained within the Trust.
3. A Fair Price: Because of the lingering “headline risk,” Buffett was able to buy this high-quality business for a price that did not reflect its true earning power. He bought a great company that had a major, but resolved, historical issue.

The Johns-Manville saga offers timeless wisdom for anyone looking to invest with a value-oriented mindset.

• Look Beyond the Headlines: The market often panics and sells indiscriminately on bad news. The word “bankruptcy” can scare away most people, but it sometimes signals the very moment a company's deepest problems are finally being addressed.
• Distinguish the Business from the Balance Sheet: A company can have a wonderful, profitable business but be crippled by a terrible balance sheet or off-balance-sheet liabilities. If and when those liabilities can be fixed or isolated, the value of the underlying business can be unlocked.
• Price vs. Value: Johns-Manville post-bankruptcy was a quintessential example of a business whose value was far greater than its market price. Fear, not fundamentals, was driving the price. Finding these gaps is the heart of value investing.