EAF GrafTech International Ltd

Nilesh Undavia, one of the largest shareholders of GrafTech International Ltd. (NYSE: EAF) (“GrafTech” or the “Company”), today made the following statement in connection with the election of directors to the Company’s board of directors (the “Board”) at the Company’s 2024 annual meeting of shareholders (the “Annual Meeting”), which is scheduled to be held on May 9, 2024:

On April 26, 2024, independent proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) published a report regarding the upcoming election.1

• 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 GrafTech are “existential,” and questioning the Board’s credibility and transparency regarding client outreach and the commencement of a strategic review—ISS somehow concluded that the same Board should be trusted to turn things around at the Company.  

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 GrafTech, such as a couple of inadvertent errors in Mr. Undavia’s response to a 33-page director questionnaire, which were promptly corrected.

We urge investors to ask themselves a simple question: How can Mr. Taccone, the incumbent nominee, be a better steward of shareholder interests than Mr. Undavia? As a director since 2018, Mr. Taccone:

• 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, Nilesh Undavia has been an exemplary fiduciary of client capital at Wellington Management (“Wellington”), one of the world’s largest asset managers, is intimately familiar with GrafTech’s industry, has concrete solutions to solve the myriad challenges faced by GrafTech, and has invested millions of dollars of his personal capital.

• Mr. Undavia has over a two-decade track record as a partner and portfolio manager at Wellington.

• 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 fellow GrafTech shareholders, especially given he has invested millions of dollars of his own capital.

For these reasons, we believe Mr. Undavia represents a better choice for GrafTech’s Boardroom.

Last Week’s 1Q 2024 Earnings Report Was DisappointingAnother 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, GrafTech did not give us—one of its largest shareholders—the chance to do so, further demonstrating its utter disregard for shareholders.

Independent Analyst Recognizes the Urgent Need for Change In a letter to the Board, dated April 11, 20242, John Tumazos, a steel industry analyst for the past 45 years, of Very Independent Research—a firm advising institutional clients in the U.S. and Canada—wrote the following:3

• “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 than GrafTech. It shocked me that GrafTech 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 Nilesh UndaviaIn concluding its report, ISS wrote: “If [GrafTech] continues to struggle in the future, the points that the dissident has made in this campaign could well serve as a foundation for a more successful case for change at the board level, at that time.” We are dumbfounded by this conclusion. Why wait for the Company to get into a more precarious financial situation and destroy even more shareholder value before adding a new highly qualified, independent director with significant skin in the game?

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 Nilesh Undavia.

Additional Information and Where to Find It

Mr. Undavia and certain family trusts (collectively, the “Undavia Group”) are participants in the solicitation of proxies from shareholders of the Company in favor of Mr. Undavia’s nomination for the Board at the Annual Meeting. On April 2, 2024, the Undavia Group filed with the U.S. Securities and Exchange Commission (the “SEC”) its definitive proxy statement and accompanying BLUE universal proxy card in connection with its solicitation of proxies from the shareholders of the Company for the Annual Meeting. ALL SHAREHOLDERS OF THE COMPANY ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO), THE ACCOMPANYING BLUE UNIVERSAL PROXY CARD AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY THE UNDAVIA GROUP, AS THEY CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE UNDAVIA GROUP AND ITS DIRECT OR INDIRECT INTERESTS IN THE COMPANY, BY SECURITY HOLDINGS OR OTHERWISE. Investors and security holders may obtain copies of the definitive proxy statement, BLUE universal proxy card and other documents filed with the SEC by the Undavia Group free of charge through the website maintained by the SEC at http://www.sec.gov/. Copies of the definitive proxy statement and accompanying BLUE universal proxy card filed with the SEC by the Undavia Group are also available free of charge by accessing the website at https://www.icomproxy.com/EAF.

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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.pdf3 Permission to quote from his letter was granted by Mr. Tumazos.