Top Avis shareholder kicks off proxy battle
A vis Budget Group Inc’s top shareholder kicked off a proxy battle with the rental-car company’s board on Thursday, citing its failure to meet financial targets and prepare the company for the transformation of the auto industry.
SRS Investment Management LLC nominated three new directors and said chairman Ronald Nelson, a former Avis chief executive officer, should be replaced.
The New York-based hedge fund, which owns almost 15% of Avis’s shares, criticised the board for comprising mostly current and past Avis executives and long-tenured directors.
“For nearly a decade, no movement has been made to refresh the legacy board despite the substantial change occurring in the mobility industry,” SRS said in a statement.
Avis’s lead director Leonard Coleman said in response that management was disappointed to be “engaged in a costly and distracting proxy fight.”
Avis and rival Hertz Global Holdings Inc are threatened by the rise of the ride-hailing model championed by Uber Technologies Inc and Lyft Inc. Automakers including General Motors Co also are experimenting with car-sharing programmes that compete with Avis’s Zipcar.
These services are becoming legitimate alternatives for the business travellers and tourists that are rental companies’ core customers.
Tension between Avis and its biggest investor has been building for more than a year.
Avis adopted a plan in January 2017 that the company said would allow it to keep buying back stock while guarding against SRS taking control of the company. SRS agreed to a standstill provision in May that would keep the hedge fund from acquiring more stock.
After months of Avis shares getting pounded by concerns about sagging used-vehicle prices hurting rental-car profits, the company struck a deal with Waymo — the unit of Google parent Alphabet Inc — to manage a fleet of self-driving Chrysler minivans, spurring a rebound.
But the stock recovery, and efforts Avis has made to respond to disruptive threats by connecting its rental fleet with a mobile app, hasn’t been enough to keep the peace.
On Jan 15, Avis announced it had offered SRS an additional board seat and a chance to have input in the process of selecting directors.
SRS refused and asked for veto over any board changes and leadership decisions, as well as the ability to significantly increase its voting power. Avis responded by adopting a shareholder rights plan that prevents SRS from obtaining control of the company without paying a premium.
On Jan 16, Avis reported that its 2017 results would be in line with guidance, with revenue rising to about $8.85 billion and pretax income of $205 million to $215 million.
The company added that rising interest rates and other unspecified items would have some impact on results this year.
SRS, which has been Avis’s largest investor for the past seven years and has had representatives on the board for the last two years, criticised management for missing financial targets.
The company has lowered sales or earnings forecasts four times since November 2016, according to data compiled by Bloomberg.
The new directors SRS said it would nominate for Avis’s board in a proxy filing are Jagdeep Pahwa, a president at the hedge fund; Carl Sparks, the former chief executive officer of Travelocity; and Matthew Espe, the former CEO of Radial Inc.