Activist investor Engine Capital is lobbying for big changes at Avantor, urging the life science toolmaker to either cut costs and reshape its management or sell itself outright.
The move comes as the firm announced that it has acquired a 3% stake in the company and after Avantor’s stock price has declined by nearly 50% since the start of the year.
At the same time, the company has been in the process of installing a new president and CEO, and, earlier this year, outlined a plan to reduce expenses by $400 million by the end of 2027.
After beginning its search for a replacement for CEO Michael Stubblefield in April, Avantor said in July that it will appoint Emmanuel Ligner, former chief of Cytiva and most recently CEO of French diagnostics provider Cerba HealthCare. Ligner is set to start next week, Aug. 18.
In its letter (PDF) to Avantor’s board, Engine Capital said that instilling a new culture of cost discipline should be a priority for Ligner’s tenure and goes beyond the $400 million initiative.
Engine Capital compared Avantor’s narrower profit margins to the biopharma lab business of segment leader Thermo Fisher Scientific, saying the company has the potential to be a formidable competitor despite losing market share in the past few years.
It tied the company’s stumbles to self-inflicted “organizational dysfunction” and said it spoke to former Avantor employees who described how, in the past, senior segment leaders “lacked ultimate authority over pricing, marketing spend and other key business decisions.”
The firm also called for the company to immediately start splitting its cash flow 50-50 between stock buybacks and paying down its debt, before eventually switching to 100% share repurchases.
In its response, Avantor reiterated that its capital allocation strategy has reduced its leverage by nearly $1.5 billion in the past 18 months, following a series of acquisitions in 2020 and 2021 that totaled about $3.8 billion. Avantor also sold off its clinical services unit last year to Audax Private Equity for $650 million.
For the board, Engine Capital proposed a “significant overhaul,” with the appointment of a new nonexecutive chair and directors with a history of leading large, relevant companies and experience in healthcare supply distribution.
The firm said it believes Avantor’s stock price has the potential to just about double in the next year and a half, up to between $22 and $26 from its current value of about $12.50—or the company could be sold entirely, for between $17 and $19 per share.