Avis Budget Group’s top shareholder has started a proxy battle with the board of directors at the rental car business, citing a failure to reach financial targets and prepare the business for the auto industry’s transformation.
SRS Investment Management nominated three directors while saying that Ronald Nelson, the Chairman and a former CEO at Avis, needed to be replaced. The hedge fund, based in New York, owns close to 15% of Avis’s shares and has criticized members of the board for comprising current and past executives and directors that are long-tenured.
For close to one decade, there has been no movement made to refresh a legacy board despite the existence of substantial changes occurring in the world’s mobility industry, said SRA in its statement.
The lead director for Avis Leonard Coleman responded that management was not pleased to be engaged in a proxy fight that is both distracting and costly.
Avis and big rival Hertz have become threatened by the increase in ride-hailing models that were championed by Uber and Lyft. Automakers that include General Motors are experimenting as well with programs of car-sharing that compete with Zipcar by Avis.
The services have become legitimate alternatives for business travelers as well as tourists, which are the core customers of rental companies.
Avis shares were up 1.3% after regular trading ended on Thursday. The stock has dropped 12% in 2018.
Tension has built up between Avis and its largest investor for over a year. Avis implemented a plan during January of 2017 that it said would allow the company to keep purchasing stock back from shareholders while guarding against control of the company going to SRS. SRS did agree to a May standstill provision, that would keep the company from acquiring any more Avis stock.
Following months where shares of Avis were being hit hard on concerns over sagging prices for used vehicles hurting profits for rental cars, the company entered into a deal with Alphabet’s Waymo to manage a Chrysler minivan self-driving fleet, which helped the stock to rebound.
However, the recovery of the stock and efforts by Avis to respond to the disruptive threats through connecting its fleet of rental cars with a mobile app has not been sufficient to maintain the peace.
In mid-January, Avis made the announcement it offered SRA another seat on the board and an opportunity for input into the selecting directors.
That was refused by SRA and it asked for veto over any changes on the board and decisions of leadership along with the ability to increase its voting power significantly.