Exide Probing for Damages From Lead Price-Fixing

Exide Technologies Inc. and its creditors are vying for the right to launch a probe into suspected metal price-fixing, with an eye toward collecting damages if it turns out the battery-maker was victimized.

Suspicions that warehouse owners and the London Metal Exchange conspired to inflate metals prices (and warehouse rents) by stockpiling the commodities in “shadow warehouses” surfaced last year, triggering questions from the Commodity Futures Trading Commission and Department of Justice as well as a wave of lawsuits. If proven, the claims of anticompetitive behavior could mean money for Exide, a lead-acid battery maker that filed for Chapter 11 bankruptcy in June 2013.

The Chapter 11 case is Exide’s second in less than a dozen years, and the company is under pressure to produce a restructuring plan that will win the approval of its creditors and the court. The chance to collect damages due to alleged anticompetitive behavior would be a valuable asset to put on the table in plan negotiations, according to court papers filed by Exide’s official committee of unsecured creditors. The committee says it’s been looking at the issue for months, tracking reports of suspected price-fixing that surfaced last year.

The committee says lead, too, may have been improperly hidden to inflate prices. If that’s the case, the committee contends that Exide, a major user of lead, should be assessing the damage. The battery maker reckons lead accounts for 45.5% of its costs. Recycling provides most of the metal for U.S. battery-making operations, but Exide’s operations in Europe use lead bought on the continent, where the warehouse stockpiling scheme reportedly operated.

But while all the major forces operating in Exide’s Chapter 11 case agree there needs to be a probe of lead price-fixing, there’s a fight over who should run the investigation. That’s a dispute U.S. Bankruptcy Judge Kevin Carey could decide Thursday, when the committee will face off with Exide and a group of its lenders over the committee’s plans bring in an outside firm to evaluate “whether the market prices paid by Exide and other lead purchasers were supracompetitive—that is, higher than what the market prices would have been absent the allegedly unlawful conduct,” court papers say.

The committee says Exide has been dragging its feet on the price-fixing probe and didn’t seem interested at all in examining the issue, which Exide has disputed. The company and the lender group, which holds hundreds of millions of Exide’s debt, say they’re well-equipped to run the probe.

In a court filing Monday, the committee also pointed to potential conflicts of interest involving Exide’s bankruptcy lawyers at Skadden, Arps, Slate, Meagher & Flom LLP. In court papers filed Tuesday, Skadden disclosed it is representing targets of price-fixing investigations involving aluminum and therefore won’t represent Exide in attempts to collect damages for anticompetitive schemes involving lead. Instead, Exide will rely on another law firm.

When it was initially hired to work on the bankruptcy last year, Skadden disclosed it was advising another client on a governmental investigation into alleged anti-competitive practices, a probe where a European subsidiary of Exide had received a request for documents. Skadden said it would continue advising its existing client, while Exide’s European subsidiary had retained another law firm to protect its interests.

The committee pointed out another potential conflict of interest—this time with J.P. Morgan Chase & Co., agent for the lenders on Exide’s bankruptcy loan, including those taking Exide’s side in the dispute. The bank “is a potential target in price manipulation investigations that are currently underway,” the committee’s lawyers said in court papers. The lawyers said they questioned the judgment of anyone “who would be willing to share information with a known target of an ongoing investigation.”

Reached Thursday, J.P. Morgan spokeswoman Jennifer Zuccarelli declined to comment on the allegations of potential conflict in the Exide Chapter 11 case. J.P. Morgan said last year that it is “pursuing strategic alternatives” to exit the physical commodities business, including shedding a European metal warehouse operation it owned. In connection with lawsuits over alleged aluminum price-fixing, J.P. Morgan has denied any impropriety in connection with its metal warehouse.

Write to Peg Brickley at [email protected].