Novavax shares rose 7.6% on Wednesday after Shah Capital, an activist investor holding a 9% stake in the company, disclosed plans to oppose select board nominees and executive pay at the vaccine maker's upcoming annual meeting.
In a letter made public, Shah Capital reiterated its call for substantial strategic and operational changes at Novavax. The hedge fund said management should pursue forceful cost reductions and consider opportunistic buybacks in the range of 10-20 million shares.
Himanshu Shah, founder of Shah Capital, outlined concrete governance and personnel recommendations in the communication. The letter seeks a 30% reduction in the senior management team and proposes trimming the board from eight members to five. It also asks the company to bring in a strategic long-term investor that would take a 10-20% ownership stake to help reshape the business.
Shah Capital expressed dissatisfaction with Novavax's commercial partnership with Sanofi (EPA:SASY), arguing the arrangement has not delivered benefits to Novavax to date. The activist singled out Sanofi's continued delay in releasing late-stage data for the companies' COVID/influenza combination vaccine, noting that the market opportunity for such a product exceeds $5 billion.
The hedge fund has previously urged Novavax's board to consider a broad set of strategic alternatives, including a potential sale. In the letter, Shah described the message to management as "an indictment of the leadership."
Shah Capital had indicated in November that it might pursue a proxy fight if the company failed to make progress. On Wednesday the firm said it would not follow through with a proxy contest at this time, commenting that such a move "will be in the minority against an entrenched eight-member board."
Beyond its recommendations for Novavax management and board composition, Shah Capital asked prominent proxy advisory firms ISS and Glass Lewis to reassess any recommendations that support the company's proposals ahead of the annual meeting.
The developments prompted a notable market reaction as investors digested the activist's proposals and the potential implications for governance, shareholder returns and Novavax's partnership strategy.
Context and next steps
Novavax faces a clear set of demands from a large shareholder that would materially alter its leadership and capital allocation approach if implemented. The company's response and any subsequent engagement with prospective strategic investors or proxy advisors will determine whether the activist's proposals gain traction before the annual meeting.