Shareholder Lawsuit Allegations: Hedge Fund Improperly Benefited from Buybacks

As reported by Bloomberg Law News, a large hedge fund that benefited from an Avis stock buyback is being accused of obtaining improper advantages at the expense of other shareholders. The company is now facing shareholder litigation. Specifically, the plaintiffs contend that the hedge fund constructed a buyback scheme to get a controlling share of the corporation at a reduced cost. Here, our Miami shareholder litigation lawyer provides a more comprehensive overview of the lawsuit and the allegations raised in the case.

Background: Company Engaged in Considerable Stock Buyback 

A stock buyback occurs when a company buys back its own shares from the marketplace. It reduces the number of outstanding shares. The action can increase the value of remaining shares by improving per-share financial metrics and, in many cases, it signals the company’s confidence in its own financial health. At the same time, stock buybacks take resources. They can divert funds from other opportunities, such as investments and employee development.

In March of 2022, Avis—the large New Jersey-based rental car company—announced a massive stock buyback program. In total, the company rolled out an approximately $1 billion buyback plan. The buyback authority of corporate executives was extended by an additional $400 million in October of 2024.

 Allegations: Large Stakeholder Benefited at Expense of Other Shareholders 

SRS Investment Management—a Manhattan-based hedge fund—made a substantial profit following Avis Budget Group’s stock buyback program. The fund, which owns a significant portion of Avis shares, gained value as the buyback resulted in a spike in stock prices.

The specific contours of the program also resulted in the hedge fund obtaining a controlling share in the corporation. A lawsuit has now been filed by a shareholder alleging that the fund improperly used its position to gain a controlling share of the company at the expense of other shareholders.

The shareholder lawsuit is a derivative action. With a shareholder derivative claim, the plaintiffs—which are themselves shareholders—bring a claim on behalf of the corporation as a whole. There are specific filing requirements that must be met to bring a derivative action.

 A Controlling Stake of a Large Company Often Requires a Higher Price 

Control of a company is valuable. For this reason, acquiring a controlling stake in a large company typically demands a premium price due to the strategic advantage and control it offers. Investors often need to pay a premium to convince existing shareholders to relinquish their control and voting rights. The higher price reflects the potential for increased influence and decision-making power within the company. In this case, shareholders argue that SRS Investment Management carried out a scheme to pay less at the expense of other shareholders.

 Call Our Miami Shareholder Litigation Attorney Today

At Pike & Lustig, LLP, our Miami business law attorney has the professional expertise to handle all types of shareholder disputes. If you are involved in shareholder litigation, we are here to help. Contact our firm today for your confidential initial consultation. With offices in Miami and West Palm Beach, we work with clients throughout South Florida.

Source:

news.bloomberglaw.com/litigation/large-avis-shareholder-benefited-from-share-buybacks-suit-says