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(Reuters) - A former executive of Martinrea International Inc intends to ask shareholders to replace a majority of the directors at the Canadian auto parts maker, accusing the board of a lack of independence and industry experience.
Rea Holdings, a Toronto-based holding company controlled by Nat Rea, a former president and deputy chairman of Martinrea, said on Thursday it intends to propose five nominees for election to the board, setting the stage for a proxy battle.
Rea, who sold his auto parts company, Rea International, in 2002 to what is now Martinrea, has been critical of the leadership of the Vaughan, Ontario-based company for some time. According to Martinrea, "his employment was terminated" in 2012.
Last September Rea and Rea Holdings brought a lawsuit against some Martinrea officials and directors alleging that they breached their fiduciary duties regarding some payments to suppliers and customers. The company has rejected the allegations and counter-sued.
"The incumbent board and management of Martinrea is deeply entrenched, with recent additions of individuals chosen to provide the appearance of board renewal," Rea Holdings said in a news release on Thursday.
Rea Holdings also said Martinrea's balance sheet is stretched and accused the company of a "pattern of serious operational issues."
A representative from Martinrea could not be reached for comment.
Shares of Martinrea have underperformed rivals such as Magna International Inc and Linamar Corp over the last two years at a time when the auto sector in North America has been recovering as the economy improves.
But the company's stock spiked 23 percent this week after Martinrea said Chief Executive Officer Nick Orlando was stepping down.
The company, which manufactures items such as fuel and brake lines for North American, European and Asian carmakers, has started a search for a new CEO.
Martinrea's stock closed 0.3 percent lower at C$10.76 on Thursday.
Analysts have said this week that the company, which has most of its operations in North America but wants to expand in Europe, looks to have put the worst behind it. They noted that a forensic audit by consultants PwC, brought in by Martinrea as a response to the Rea lawsuit allegations, has failed to undercover any major wrongdoing.
"With the forensic audit and review essentially complete with no smoking gun or proof of any material or significant malfeasance, significant board level changes and a soon-to-be new CEO, we believe key concerns of shareholders have been dealt with," GMP Securities analysts Justin Wu and Otto Cheung said in a note to clients.
Rea Holdings' nominees for Martinrea's eight-member board are: Rea himself, who owns 100,000 shares in the company; Manfred Gingl, the former CEO of Magna; Sandra Levy, Magna's former director of human resources; Roland Nimmo, Magna's former head of internal audit and Paul Smith, the chair of VIA Rail Canada.
Martinrea's annual meeting is expected to be held in June.
Reporting by Nicole Mordant in Vancouver and Euan Rocha in Toronto; editing by Sofina Mirza-Reid