Files Definitive Proxy Materials with
Securities and Exchange Commission
Save GrafTech, an investor group led by Nathan Milikowsky, a
holder of over 15 million shares of GrafTech International Ltd., or
over 11.2% of the common stock, announced today that it sent a
letter to GrafTech's shareholders outlining the experience and
qualifications of Save GrafTech’s three highly qualified,
independent director nominees: Karen Finerman, David Jardini and
Nathan Milikowsky. The letter urges shareholders to support Save
GrafTech’s nominees, who have the skills and experience to fix
GrafTech’s problems, and reject GrafTech’s long-serving incumbent
directors: Mary Cranston (14 years on Board), Ferrell McClean (12
years on Board) and Steven Shawley (4 years on Board).
On April 15, 2014, Save GrafTech filed definitive proxy
materials with the Securities and Exchange Commission in connection
with GrafTech’s 2014 Annual Meeting of Shareholders.
Included below is the full text of the letter to GrafTech’s
shareholders:
April 16, 2014
Dear Fellow GrafTech Shareholder:
I am writing today on behalf of an investor group called “Save
GrafTech” that has nominated three highly qualified independent
candidates for election to the GrafTech International Ltd. Board of
Directors at the Annual Meeting on May 15, 2014. I own over 15
million GrafTech shares, or over 11.2%, of the common stock1, and
am a former GrafTech Director with over 30 years of experience in
the steel industry.
In 2010, GrafTech acquired two businesses from me – C/G
Electrodes and Seadrift Coke – and I joined GrafTech’s Board. After
serving on the Board for approximately a year and watching the
Company’s value steadily decline, I began to ask tough questions of
management and, after making a concerted effort to replace the CEO,
I was not nominated to stand for re-election at the 2013 Annual
Meeting.2
GrafTech’s proxy materials include numerous false allegations
about my conduct as a director. To be clear, I unconditionally deny
the false allegations made by the Company, which has yet to provide
me or shareholders with any evidence to substantiate any of their
claims. While the current Board is wasting shareholder funds to
make personal attacks against me and members of my family, my
motivation for seeking Board representation for our nominees is not
personal. As GrafTech’s largest non-institutional shareholder, I
want to see the Company succeed over the long term, and my focus
remains on reconstituting the Board with directors who have the
industry experience and skills necessary to fix GrafTech’s
significant problems and create meaningful shareholder value.
GrafTech’s chronic underperformance has, in my opinion, resulted
primarily from poor management and lack of Board oversight. The
nominees put forward by Save GrafTech have a unique understanding
of GrafTech’s operations and challenges as well as its
extraordinary potential. Because we believe in this potential, we
are asking for your support at this year’s Annual Meeting. Save
GrafTech is committed to working with GrafTech’s newly appointed
CEO to implement strategies and organizational changes to
unlock and protect value for all
shareholders.
Why is Save GrafTech Seeking Board
Change?
Under its current Board of Directors, GrafTech has suffered from
continuing strategic, operational and governance issues that we
believe have significantly impacted performance and led to
prolonged shareholder value destruction.
- GrafTech is the world’s oldest
high-quality graphite electrode producer, and while demand for its
core product steadily grows, GrafTech’s graphite electrode sales
volume continues to decline. Over the past 10 years, GrafTech has
produced a total shareholder return (“TSR”) of negative 15%,
underperforming its peers by over 200%.
In January, after Save GrafTech threatened to launch a proxy
contest, GrafTech suddenly announced CEO Craig Shular’s immediate
retirement – a change I had advocated while serving as a Director
and one that GrafTech’s Board vigorously resisted. In fact, in an
effort to protect Mr. Shular as CEO, in 2012 GrafTech’s Board
formed a Special Committee to investigate an alleged leak of
confidential information and, in doing so, labeled Mr. Shular and
certain other executives “whistleblowers” who could not be
terminated for any reason for a period of time. While we are
pleased that Joel Hawthorne finally did replace Mr. Shular after a
decade of chronic underperformance and enormous destruction of
shareholder value, a management change is only the first step in
the fundamental turnaround necessary to revitalize GrafTech.
The Company is asking you to re-elect several long-serving
incumbent directors who, in my view, do not understand the
electrode business, have failed to adapt to the realities of modern
manufacturing and are deeply entrenched and close-minded. I believe
the only way to effect real change at GrafTech is to reconstitute
the Board with highly qualified, independent directors who will
bring relevant experience and fresh ideas to the table and hold
management truly accountable to shareholders.
GrafTech’s Chronic
Underperformance
GrafTech has great people, great plants, and a heritage in the
carbon and graphite industries unmatched by competitors. Further,
GrafTech is the only maker of graphite electrodes that is
backward-integrated into needle coke, the key raw material for
high-quality graphite electrode production. This allows GrafTech to
internalize raw material profit margins that all of its competitors
must surrender to GrafTech or other needle coke suppliers.
Despite these competitive advantages, GrafTech has dramatically
underperformed its peers over the past decade, has watched its
market share erode, and suffers from a severely depressed market
capitalization. Over the past 10 years, on a total return basis,
indices of GrafTech’s peer group and steel mini-mills have risen
197% and 343%, respectively. GrafTech’s TSR has been negative 15%
over the same period under the current Board’s oversight.
This significant decline in TSR is even more pronounced in
contrast to the concurrent increase in electric arc furnace (“EAF”)
steel production globally over the same period. As shown in the
chart below, while GrafTech’s shipments have steadily declined,
steel production worldwide has continued to increase. Moreover,
leading indicators for steel production are continuing to improve
as the recovery of U.S. non-residential construction accelerates
and demand in Europe begins to stabilize. Despite these positive
macro trends, GrafTech’s TSR and market share have consistently
moved in the wrong direction.
The trend in GrafTech’s market capitalization has been similarly
alarming, dropping from $2.9 billion in November 2010, when it
acquired C/G Electrodes and Seadrift from me for approximately $850
million, to only $1.5 billion today.
The Current Board of
GrafTech Has Failed Shareholders
Poor leadership is at the heart of GrafTech’s disappointing
performance. The Board and management failed to take timely steps
needed to alter GrafTech’s downward trajectory as sales declined,
operations suffered, and customer relationships eroded. We believe
the primary causes of GrafTech’s chronic underperformance are
deficiencies in strategy and operations and a failed Board culture
that has tolerated severe and prolonged underperformance.
- Improper Commercial Strategy.
GrafTech’s Board and senior management have failed to grasp the
essential commodity nature of the high-quality graphite electrode
market and have gone to market with a disastrous “price leadership”
strategy.
- Inefficient Overhead. GrafTech
maintains a bloated and inefficient overhead structure, with
multiple layers of redundant authority that weigh on
decision-making, agility and, ultimately, profitability.
- Excessive Inventory. GrafTech’s
inventory has grown dramatically as the Company has lost market
share and revenue has declined. Not only does this excess inventory
increase interest costs, it places a significant drag on the
efficiency of the Company.
- Seadrift Failures. By not
consistently running Seadrift to capacity, GrafTech has failed to
capitalize on the unique competitive advantage of owning the second
largest needle coke producer in the world. We believe this
under-utilization represents a huge missed opportunity, which may
have cost the Company $15 million per year in EBITDA.
- Broken Company Culture. We
believe employees are marginalized, demoralized and improperly
incentivized by a hierarchical structure that has raised costs,
curbed initiative and distanced senior management from core
business operations and customers.
The Company’s “Rationalization Plan” announced in October 2013
and Craig Shular’s sudden and unexpected “retirement” in January
2014 – which was announced shortly after Save GrafTech began its
public campaign – are reactive and inadequate responses to
prolonged, serious operational and strategic deficiencies. While
the Company’s plan may produce limited short-term savings, it does
not address the fundamental flaw of GrafTech: the failure to adopt
a modern manufacturing culture. GrafTech can do better than shut
down a few plants in emerging markets. Save GrafTech’s nominees
will change GrafTech’s overall approach and transform it into a
streamlined manufacturer, mirroring GrafTech’s core customers,
steel minimills.
The Call to “Save
GrafTech” Is Urgent – Visit www.SaveGrafTech.com
“Save GrafTech” is not simply a slogan. We believe the numerous
failures of GrafTech’s management and Board have hurt shareholder
value, placed the Company’s future at risk, and warrant dramatic
and meaningful change.
We encourage all GrafTech shareholders to visit
www.SaveGrafTech.com and review the detailed presentation we have
developed that analyzes GrafTech’s track record of severe
underperformance and outlines our recommendations to create
sustainable, long-term shareholder value.
Save GrafTech’s
Nominees Are Committed to Creating Shareholder Value
The Save GrafTech nominees have industry and other relevant
experience, a shareholder orientation, and a firm commitment to
work with CEO Joel Hawthorne to identify and implement
value-creating initiatives for the benefit of all GrafTech
shareholders. Our director nominees are:
- Karen L. Finerman: Redefining
Corporate Communication. Ms. Finerman is CEO of Metropolitan
Capital Advisors, a New York-based investment management firm that
she co-founded in 1992. Prior to this, she was the Lead Research
Analyst for the Risk Arbitrage department at DLJ Securities Corp.
Ms. Finerman is also a permanent panelist on CNBC’s Fast
Money.
- David Jardini: Instilling
Operational Excellence. Mr. Jardini co-founded C/G Electrodes
with Nathan Milikowsky in 2003 and served as its President until it
was sold to GrafTech in November 2010. He played a key role in the
enormous value creation at C/G Electrodes before its sale to
GrafTech. Mr. Jardini is currently the chairman of Black Diamond
Investments LP. He is also President of American Gas Lamp Works
LLC, a private manufacturer of gas lamps. Mr. Jardini has over 15
years of experience in the steel and graphite electrode businesses
and a proven track record of creating value.
- Nathan Milikowsky: Reestablishing
Shareholder Accountability. Mr. Milikowsky served as a director
of GrafTech from late 2010 until May 2013 when he was ousted from
the Board. He was previously President of Seadrift Coke and
Chairman and CEO of C/G Electrodes, which he formed in 2003. In
that year, he led a group that purchased the closed St. Mary’s, PA
plant of the bankrupt predecessor and restarted the production of
UHP graphite electrodes. Mr. Milikowsky had been involved in steel
trading starting in 1969. In 1979, he acquired ownership of three
manufacturing businesses which produced corrugated metal decking
for the construction business, 55 gallon steel drums, and five
gallon steel pails. After achieving significant growth, these
companies were sold from 1991 to 1995.
Unlike GrafTech’s current Board, which does not have any
independent directors with experience in either the steel or
graphite industry, Save GrafTech’s nominees have the industry
experience and skills necessary to help fix GrafTech’s problems and
create meaningful shareholder value.
We strongly believe the action we are taking is essential to
protect and grow value for all shareholders. Without a cultural
change in the Boardroom, we do not believe that GrafTech will be
able to implement the strategic and organizational changes needed
to create value for shareholders.
Why Is A Proxy Contest Necessary?
We have tried in good faith to resolve our differences with
GrafTech’s Board and reach a settlement that would enable the
Company to avoid the distraction of a proxy contest at this
critical time. Despite many concessions on our part, GrafTech’s
Board would not accept any of the reasonable settlements we
offered. In fact, their latest rejection clearly betrayed the
Board’s lack of confidence in the “findings" of its own Special
Committee investigation, which was the pretext for excluding me
from continuing to serve as a director in 2013.
While Save GrafTech proposed an objective assessment of the
allegations of the GrafTech Board (as outlined in the Company’s
proxy statement) through a simple process that would take only
approximately two weeks to complete, the current Board instead
demanded an elaborate litigation-like exercise that would take a
minimum of two years to complete and would waste substantial
shareholder funds. Reinvestigating the same purported leak through
an unnecessarily involved judicial or arbitration process, as
GrafTech now demands, is a transparent stall tactic designed to
create a significant delay to my rejoining the Board. If the
GrafTech Board believed its personal attacks against me were true,
why wouldn't they allow an independent law firm to review the
results of the Special Committee’s investigation, as we suggested
in our settlement proposal?
Is this response consistent with a Board that is serious about
working constructively to find common ground or is it the behavior
of an entrenched Board that puts its own interests before that of
the Company and its shareholders? We believe it is the latter.
Accordingly, our only alternative is to put Board representation to
a shareholder vote.
We urge you to read Save GrafTech’s proxy statement and detailed
presentation available at www.sec.gov and www.SaveGrafTech.com. We
also urge you to review our nominees’ credentials and compare them
to those of the three directors we propose to replace, who have
served on GrafTech’s Board for a combined 30 years, have no
relevant steel industry experience outside of their tenure on
GrafTech’s Board, and have overseen massive destruction of
shareholder value.
- Mary Cranston (14 years on
Board), a retired lawyer with no relevant industry experience and a
history of launching smear campaigns against those she perceives as
obstacles or threats3
- Ferrell McClean (12 years on
Board), a retired investment banker with no experience in the steel
or graphite industries
- Steven Shawley (4 years on
Board), a retired finance executive with no experience in the steel
or graphite industries
Finally, we urge you to ask: How would GrafTech not benefit from
adding our three highly qualified nominees to provide minority
representation on GrafTech’s seven-member Board?
As directors, our nominees would know the right questions to ask
and would have the strength, independence and economic incentive to
ask them. As the largest non-institutional shareholder of GrafTech,
I have far more “skin in the game” than any existing director. In
contrast, GrafTech’s proposed slate of seven nominees owns a total
of only 583,432 shares, representing a nominal 0.43% of total
shares outstanding. More than half of these shares are owned by
Joel Hawthorne.
We believe many GrafTech shareholders share our frustrations
with the Company’s poor business performance, failure to generate
any shareholder return over 10 years, lack of Board oversight and a
failed Board culture. If you agree, send that message to GrafTech
by completing, signing, dating and returning the enclosed BLUE
proxy card.
VOTE FOR THE NOMINEES WHO WILL SERVE YOUR
INTERESTS
YOUR VOTE IS IMPORTANT – VOTE THE
BLUE PROXY CARD TODAY!
Save GrafTech is committed to serving the interests of all
shareholders. We believe that GrafTech has enormous potential, but
is in dire need of improved leadership and oversight on the Board.
Save GrafTech’s director nominees are prepared to work
collaboratively with the incumbent directors and take the necessary
steps to regain market share and generate sustainable shareholder
value.
We urge you to vote your BLUE
proxy card FOR Save GrafTech’s director nominees today.
Sincerely,
Nathan Milikowsky
Your Vote Is Important, No Matter How Many
Shares You Own.
If you have questions about how to vote your shares on the
BLUE proxy card, or need additional assistance, please contact the
firm assisting us in the proxy solicitation:
D.F. King & Co., Inc.
Shareholders Call Toll-Free: (800) 628-8532 Banks and Brokers Call
Collect: (212) 269-5550
Email: savegraftech@dfking.com
IMPORTANT
WE URGE YOU NOT TO SIGN ANY WHITE PROXY CARD SENT TO YOU BY
GRAFTECH
1 Together with my family, I own approximately 11.2% of
GrafTech’s common stock. Together with other former shareholders of
C/G Electrodes and Seadrift, I also hold $200 million of GrafTech’s
$536 million debt as a subordinated note.
2 The circumstances surrounding the end of my Board service are
detailed in the Save GrafTech proxy statement available at
www.sec.gov and in a New York Times article entitled, “Behind Staid
Steel, a Percolating Boardroom Drama” that was published on January
23, 2014.
3 In 2002, while serving as Chair of the law firm Pillsbury
Winthrop Shaw Pittman, Mary Cranston issued a press release
defaming a former partner of the firm, a move that was detailed in
numerous articles including:
www.theconglomerate.org/2006/01/mary_cranston_r.html.
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