Nilesh Undavia Believes Incumbent Directors Cannot Be Trusted After Destroying 90% of Shareholder Value
Another Disappointing Earnings Report Shows GrafTech Appears to Lack Credibility with Investors
Independent Analyst Recognizes the Urgent Need for Change
On
- ISS acknowledges that our campaign “has successfully highlighted some of the [C]ompany’s many pressing and existential issues” and agrees with us that, “the issues facing the [C]ompany are serious, and if not adequately handled, may soon prove to be existential.”
- ISS emphasizes, as did we, that GrafTech’s Total Shareholder Return (TSR) “trails its peer median and the relevant index over the past one-, three- and five- year periods… and since the [C]ompany’s
April 19, 2018 IPO,” displaying the massive destruction of shareholder value under this Board and management team.
Agreeing with many of our concerns, in its report, ISS also notes the following:
- Revenue: “The [C]ompany’s shrinking share of ex-
China industry revenues is greater cause for alarm, as this share has declined from 13.2 percent in 2019 to 4.7 percent in 2023. The [C]ompany has clearly not been able to replace the ‘captive’ revenue that it once had from LTAs.”
- Customers: “Year to date, the [C]ompany’s management has met with customers representing over 75 percent of the [C]ompany’s electrode sales volume in the
Americas . The corresponding figure for this portion of 2023 was approximately 20 percent, ISS learned in engagement with the [C]ompany. Given the disparity of customer outreach between the two years, it is reasonable for shareholders to question the intensity of effort involved in this campaign in its early years.”
- Strategic Review: “[A]round 18 months ago, the [B]oard began a strategic review aimed at identifying opportunities in the battery anode space. The campaign was not announced at the time, the Board explained in engagement with ISS, because the [C]ompany did not want to disrupt customer relationships. While this may be a valid concern, it is unclear that the [B]oard made the right decision in keeping this information from shareholders. The first disclosure of this review appears to be in a [C]ompany presentation filed on
April 17, 2024 , well after this proxy contest began.”
- ISS also observed that management has not addressed concerns about the Company’s liquidity for periods after 2024.
We are therefore baffled that—despite recognizing massive shareholder value destruction, declaring the issues facing
Rather than hold the Board accountable for its failures, it appears that ISS chose to focus on the personal attacks, distractions and red herrings presented by
We urge investors to ask themselves a simple question: How can
- oversaw over
$4 billion of shareholder value destruction;
- failed to re-position GrafTech’s business after claiming intimate knowledge of GrafTech’s customers;
- oversaw the hiring of former CEO
Marcel Kessler , who lacked the necessary background and qualifications; and
- has not bought even a single share of
GrafTech stock in the past four years.
In stark contrast,
Mr. Undavia has over a two-decade track record as a partner and portfolio manager atWellington .
- In his role at
Wellington ,Mr. Undavia embodied its code of ethics, which demands that “clients’ interests must always come first; they cannot and will not be compromised.”
- He continuously exhibited diligence and exercised “duty of care” as a fiduciary for client assets in the tens of billions of dollars.
- We find it absurd to question whether
Mr. Undavia would apply the same “duty of care” to the interests of fellowGrafTech shareholders, especially given he has invested millions of dollars of his own capital.
For these reasons, we believe
Last Week’s 1Q 2024 Earnings Report Was Disappointing
Another clear sign that the Company continues failing to meet investor expectations is the 17% drop in stock price during the earnings conference call, ending down 2% for the day, compared to the 0.5% jump in the NYSE Arca Steel Index.
We attribute the fall in the stock price to GrafTech’s continued failure to address the following challenges:
- The implicit indication that the Company’s financial performance would remain muted or could potentially deteriorate in 2024 due to weakening pricing and stagnant volumes;
- A significant portion of the cost reductions announced in response to our campaign, were due to accounting factors;
- No mention of a strategy or path to regain market share; and
- Zero progress being reported by the Company on incremental customer engagement for electric vehicle battery producers, something it has been talking about for seven quarters.
We patiently waited in the queue to ask questions on the call, hoping to gain clarity on many of the issues plaguing the Company. Unfortunately,
Independent Analyst Recognizes the Urgent Need for Change
In a letter to the Board, dated
- “The irony of
GrafTech suffering a 50% volume decline as new electric arc furnaces sprout like Spring tulips made me very curious. …. [we] ask[ed] steel melters why they buy from your competitors more thanGrafTech . It shocked me thatGrafTech was visibly absent from [a recent]Louisville, KY gathering of your customers.
- GrafTech’s marketing efforts lag competitors.... [for example] Tokai Carbon told us afterwards that it made 3 sales at the program, where
GrafTech did not embrace this opportunity to join its customers and was not even listed as a donor to AIST.
- [I]t is urgent to repair and improve your business relationship with Nucor, whose alumni are key decision-makers at STLD,
Big River Steel or elsewhere. Recently they prefer Tokai Carbon or Resonac, where simply winning one-third of Nucor’s business would add over 1/10th to your volumes. The relationship appears ‘estranged’…
- The most important criteria in selecting the new key executives should be existing relationships with key customers, the ability to win new sales and repair relations with key customers lost. The Board’s selection of the prior CEO
Marcel Kessler baffles me, where his prior employment at McKinsey or as CEO of Pason Systems data firm reselling wellhead data back to oil producers suggests no relevance or market knowledge to sell electrodes to steelmakers. Marcel Kessler’s tenure coincided with several setbacks.
- It saddens me that you rejected Nilesh Undavia’s offer to join your board, where a 6% personal ownership from a veteran institutional investor is a wonderful endorsement. Further, it confuses me that you spend probably close to
$1 mm of shareholder funds opposing his proxy campaign, where shareholder funds are precious as losses loom.”
In Conclusion, Vote FOR
In concluding its report, ISS wrote: “If [
Shareholders need to act now by electing a director who will represent their interests with an owner’s perspective and a deep commitment to shareholder value. To achieve much-needed change in the GrafTech Boardroom, shareholders should vote on the BLUE universal proxy card FOR
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1 Permission to use quotations from the ISS report was neither sought nor obtained.
2 https://icomproxy.com/UPLOADBLOGSDIR/44/files/sites/44/2024/04/GrafTech-Letter-041124.pdf
3 Permission to quote from his letter was granted by Mr. Tumazos.
Source: Undavia Nominees
2024 GlobeNewswire, Inc., source