One year ago, in announcing an agreement with SRS Investment Management, Avis Budget Group(CAR) CEO Ronald Nelson had nothing but praise for SRS.
We are pleased to welcome Brian to the Board and are confident that the skills and expertise that he and the other new independent director will bring to the Board will add valuable insight as we continue to execute on our strategy,” said Ronald L. Nelson, Avis Budget Group Executive Chairman. “SRS has maintained a constructive relationship with us for several years, sharing a consistent view of where our industry is headed and a focus on our Company’s long-term growth opportunities.”
Now, as SRS’s standstill agreement expires, Nelson and Avis are singing a different tune with the adoption of a poison pill.
… its Board of Directors has adopted a short-term stockholder rights plan that will enable the Company to continue to engage in substantial share repurchases without subjecting it to the potential risk of “creeping control” that could harm stockholders.
SRS Investment Management (“SRS”) has disclosed an approximately 28.5% economic interest in Avis Budget Group, including voting power over approximately 9.7% of the outstanding shares and economic exposure to an additional approximately 18.8% of the outstanding shares through cash-settled derivative instruments and options.
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The Company and SRS entered into an agreement in January 2016 which contains standstill provisions which expire January 25, 2017, as well as SRS board representation which continues. SRS has been unwilling to agree to customary standstill provisions going forward.
To keep any party from obtaining effective control of Avis Budget Group without paying a control premium, and to prevent the ability to effectively block strategic actions that may be in stockholders’ interests, the Board believes it is in the best interests of the Company and all of its stockholders to implement a short-term rights plan. The rights plan is not intended to prevent – and is designed to ensure that stockholders have a fair opportunity to consider – any action with respect to the Company (including its acquisition) that the Board determines to be in the best interests of stockholders and is not being adopted in response to any specific action or proposal.
As far as we can tell, Avis Budget is the only company for which SRS has ever filed a 13D indicating an activist position, though it has filed a number of 13Gs indicating passive positions. It would be interesting to understand why Avis’s management believes that SRS has changed its strategy. Are there material weaknesses in Avis’s business that are not yet public, or indications that their current strategy is ineffective? Or, on the contrary, are things going very well? Or is something else entirely? Keep in mind that the stock is up 42% since the agreement was signed one year ago.
Dealbook questions the company’s strategy in adopting this plan. We, like them, wonder just what it is that we don’t know.
Disclosure: The author holds no shares of any stock mentioned