(Reuters) -Activist investor Engine Capital is gearing up for a proxy battle at Lyft (NASDAQ:LYFT), after it nominated two directors to the board of the ride-hailing company on Wednesday.
The hedge fund, which owns about 1% of Lyft, said it nominated Alan Bazaar and Daniel Silvers for election to the board of the company, which has underperformed rival Uber Technologies (NYSE:UBER) and the broader market.
"There is an urgent need for shareholder-driven change in Lyft’s boardroom, which is unfortunately dominated by misaligned founders and independent directors with insufficient public market experience," said Arnaud Ajdler, Engine Capital’s founder and portfolio manager.
Lyft’s shares were up 1%, after it announced its entry into European markets by acquiring Germany’s FreeNow mobility platform for nearly $200 million.
Reuters first reported about Engine Capital nominating directors at Lyft last month.
The company said on Wednesday it had been engaging with Engine Capital for months but determined its nominees would not add new skills to the board.
Engine Capital criticized Lyft’s dual-class share structure, which gives founders, who collectively own less than 2.5% of the company, about 30% of voting power. The activist also highlighted negative shareholder returns in the past five years.
Lyft has a market value of about $4.6 billion, compared to larger rival Uber’s $155 billion.
While Uber expanded internationally and diversified into food delivery and other services, Lyft has maintained its focus on the North American ride-hailing market.
Engine Capital said it had attempted to engage privately with Lyft’s leadership in recent months, offering "value-enhancing ideas" and suggesting director candidates with public market experience, but was rebuffed.
According to the activist, Lyft’s nominating and corporate governance committee did not offer to interview its nominees.
Lyft currently has a 10-member board, with four directors standing for election at this year’s annual meeting. The company requires shareholders to own at least a 1% stake to nominate directors, according to a regulatory filing last year.