2023-05-30 05:00:15 ET
Summary
- Avnet was awarded nearly $268 million in damages in a price-fixing lawsuit against Nippon Chemi-Con Corp and its subsidiary United Chemi-Con Inc.
- Avnet reached out-of-court settlements with defendants MATSUO and ELNA, potentially bringing the total gain from the lawsuit to over $350 million, including previous settlements.
- The market reacted positively to the news, but the exact net amounts gained may not be fully reflected in Avnet's stock price yet.
Background to the lawsuit
In August 2022, we published an article disclosing several Antitrust lawsuits that held the potential to yield significant benefits for Avnet ( AVT ), Benchmark Electronics ( BHE ) and two minor players, Jaco and AASI (the Beneficiaries' Trust representing the interests for now defunct All American Semiconductor Inc. - last ticker SEMIQ).
The existence of these legal proceedings was mostly unknown to investors, at that time, as both AVT and BHE didn't mention them (and their potential positive outcome) in the legal section of their respective filings.
By choosing to pursue their own individual legal recourse, AVT and BHE took the decision to opt out of the Direct and Indirect purchasers' Antitrust class actions that lead to settlements recovering approximately $600 million and $80 million, respectively.
These class actions, in addition to the U.S. Department of Justice [DOJ] investigation into the price fixing conspiracy, played a crucial role in substantiating the extent of the fraud and damages suffered by purchasers of capacitors over a period spanning more than a decade.
Here is how AVNET layers described the price-fixing conspiracy:
AVT case number is 3:17-cv-07046, "Avnet Incorporated v. Hitachi Chemical Company Limited et al", and was originally filed on December 11, 2017.
As we noticed in our follow-up article , the AVNET trial, originally due to start on November 2022, was postponed to May 2023.
At the begging of November 2022, AVNET started filing dockets in court revealing a round of settlements with several defendants, leading to a roughly $62 million gain (10-Q filing , pg.12):
Given the information available through court documents after the first round of settlements, we estimated that AVT could have reached an additional range of " $120 million to $150 million" gains through settlements with the remaining defendants - which we now know was quite a wrong prediction.
Avnet recent win in court
On May 22, a jury verdict awarded nearly $268 million in damages to Avnet, as reported , among others, by Reuters:
The jury verdict in San Francisco federal court against defendants Nippon Chemi-Con Corp and its Illinois-based subsidiary United Chemi-Con Inc came after two days of deliberation at the end of a two-week antitrust trial.
The jury awarded $89,244,000 in damages, which will be trebled under U.S. antitrust law.
However, we believe there's more to the story, as Avnet also settled with two other defendants, MATSUO and ELNA, prior to the trial.
On April 28, AVT informed the court that a settlement with defendant Matsuo had been reached:
A few days later, a stipulation of dismissal was filed with the court.
A similar request was filed relating to defendant ELNA on May 19, just a few days before the trial started:
A stipulation of dismissal frequently serves as a legal indication of an out-of-court settlement being reached.
While it is difficult to speculate about the terms of the settlements, they should add another few million dollars to AVT total gain from the lawsuit, which could exceed $350 million in total (probably in excess of the company's own expectations).
Avnet was seeking to recover damages in the amount of $274 million from the trial against remaining defendants - the verdict and the most recent settlements could very well reach the expected amount.
We were wrong
In all fairness, we never expected the trial to come before a jury, as we believed that all defendants would choose an out-of-court settlement, rather than facing a sentence.
Evidence about the existence of the fraud was overwhelming, and during the direct and indirect purchasers' class action all companies involved decided to settle, sooner or later.
The ELNA settlement, just days before the trial, was the behavior we would have expected from all defendants even in the AVNET case.
In hindsight, it appears that our initial assessment was incorrect. Nippon Chemi-Con made the decision to take their chances in court, deeming it the lesser of two evils. We can now say this decision may not have been their most favorable choice for the company.
To give some background and some explanation to our (wrong) assumption that all defendants, including Nippon Chemi-Con, would settle and AVT would recover a smaller amount, through settlements, than its declared target in court, here are some information related to the previous cases Nippon Chemi-Con was involved with.
Nippon Chemi-Con had plead guilty in the DOJ investigation:
The company was among the last defendants to settle the class action case, but still decided to avoid a jury court:
The final two defendants in the case, Nippon Chemi-Con Corp and Matsui Electric Co., agreed to settle the case in December 2021 on the eve of the two-week trial's closing arguments. Nippon Chemi-Con agreed to pay $160 million to the class and Matsui Electric threw in $5 million, bringing the sprawling antitrust suit's settlement total to more than $604 million.
Nippon Chemi-Con share of the class action settlement represented over 25% of the total amounts recovered.
As Avnet underlined during the case, as one of the largest distributors of these products, the company purchased "more than $500 million of capacitors from Conspirators during the conspiracy period".
The damage amount, to be calculated by the jury following the judge's instructions, ended up being an impressive $89 million for Nippon Chemi-Con alone.
As damages are tripled under U.S. antitrust law, Nippon Chemi-Con gross gain ($268 million) will represent a damage amount very close to Avnet's expectation of $274 million from all remaining defendants.
Conclusion
It took several years in court, but justice has been finally reached.
AVT decision to opt out of the purchasers' Antitrust class actions has paid off very well. Total gross recovery from the jury verdict and the defendant settlements may have reached roughly $350 million - definitely a significant amount, probably exceeding the company's own realistic expectations.
Last week the market reacted positively to the press leaks about the jury verdict - however we believe that, absent a filing from the company clarifying the exact net amounts gained, the news might not be completely discounted into today's AVT stock price.
For further details see:
Avnet Antitrust Win Larger Than Expected