Describing the actions of Johnson Controls, Inc. (JCI) as “outrageous” and “extortionate,” management at Exide Corporation responded today to a lawsuit filed by JCI against the company.
Earlier this month Robert A. Lutz, Chairman of the Board and Chief Executive Officer, and John R. Van Zile, General Counsel, were contacted by both the chief operating officer and general counsel of JCI. In those contacts JCI threatened to sue Exide, claiming JCI lost a significant customer (Sears) to Exide in 1994 because of improper payments made by Exide’s former management to a Sears employee. Each JCI officer said JCI would drop the claim, which they valued at $50 to $100 million, if Exide would make certain commercial concessions to JCI.
In a letter from JCI’s general counsel, dated June 12, 2000, JCI confirmed its “desire to discuss a possible transaction involving a part of Exide’s battery business and the possible resolution of claims that Johnson Controls or its subsidiaries has or may have against Exide arising out of what we understand to be instances of commercial bribery of a representative of Sears, Roebuck and Co. by members of Exide’s former upper management. Our information on this topic has come from public records that were made available to Johnson Controls last fall.”
In a letter to JCI Chairman and Chief Executive Officer James H. Keyes dated June 14, 2000, Exide’s chairman said, “JCI’s unfounded threats to obtain favorable business treatment or otherwise interfere with Exide’s business are unethical, improper, and legally actionable.”
“It is indeed unfortunate that relations between JCI — a company I have personally always held in high regard — and Exide have deteriorated to the point of litigation. However, Exide will not be pressured into making economic concessions under the threat of a lawsuit. There may be those who view Exide’s pending acquisition of GNB Technologies as a window of vulnerability and be tempted to take advantage of it. That would be a serious miscalculation,” Lutz said today.
Management at JCI, while acknowledging no independent knowledge of any improper payment, referred to allegations of such a payment made in late 1995 or 1996, long after Exide assumed the Sears business.
The threat and lawsuit came after Exide received approval from federal regulators to proceed with its acquisition of GNB Technologies from Pacific Dunlop, LTD. While the acquisition is still pending the completion of due diligence and financing, the acquisition would strengthen Exide’s competitive position in the North American automotive battery market, where JCI is the market share leader.
Exide believes that JCI’s allegations are unfounded and that the threats and subsequent lawsuit have only been used to pressure Exide into commercial concessions and to potentially interfere with the GNB acquisition. Exide does not believe that the suit will have any material adverse affect on the company. Exide will file a civil counter-claim and is considering referring the matter to the appropriate authorities for possible criminal prosecution.
Allegations of an alleged improper payment to Sears were made public over a year ago as part of a Florida Attorney General investigation. The issue received further attention as a result of a claim and counterclaim between Sears and Exide in 1999, litigation Exide filed against former management, other litigation related to alleged “used as new” claims, as well as publicity related to a federal investigation of Sears automotive businesses, including batteries manufactured by Exide and sold by Sears.
Exide Corporation, with annual revenues of approximately $2.2 billion and operations in 23 countries, is the world’s largest manufacturer of automotive and industrial lead-acid batteries and a leader in electric storage solutions. Further information about Exide’s businesses and products is available at www.exideworld.com.