UCAR: Price-Fixing Fine of $110 million

Verdict’s July ‘98 Report on the Justice Department’s price-fixing investigation of the graphite electrode industry contradicted Street advice and predicted that UCAR faced as much potential trouble as ADM.  On February 23, 1998, Showa Denko Carbon paid a fine of $29 million, the fourth largest anti-trust fine in history after the $100 million paid by ADM.  Verdict then predicted that the UCAR’s fine would range from $60 to $100 million with a possibility of $150 million. From June to October the stock rose from $40 to $50, and it then fell to a low below $30 in March.

In March of  ‘98, the CEO and COO of UCAR resigned.  On April 1, 1988, UCAR announced a fourth quarter charge of $310 million to cover “potential price fixing liabilities”. A week later, in a consent decree with Justice,  UCAR agreed to pay a fine of $110 million. The $110 million does not include the ultimate settlement costs of private anti-trust treble damage suits.  However, Verdict believes the $310 million was reserved after preliminary discussions with UCAR’s customers, who are the potential plaintiffs in civil, anti-trust cases. Moreover, given the concentrated nature of the industry and the fact that carbon electrodes are components in the steel manufacturing process, Verdict believes any payments in these private settlements will be spread over a number of years.

Thus, once the criminal fine was announced, Verdict advised subscribers that UCAR presented a buying opportunity.