What is a proxy fight?
A proxy fight is the action of a group of shareholders joining forces to gather enough shareholder proxies to win a corporate vote. Sometimes called the “proxy battle”, this action is mainly used in takeovers of companies, where outside buyers try to convince existing shareholders to vote all or part of the senior management of a company, in order to facilitate the taking of control over the organization.
How proxy fighting works: the process of hostile takeover
Shareholders can appeal to the board of directors of a company if they are not satisfied with a specific management decision. But if board members refuse to listen, disgruntled shareholders can persuade other shareholders to let them use their proxy votes in a campaign to replace inflexible board members with more receptive candidates. implementing changes proposed by shareholders.
The acquirer and the target company use various solicitation methods to influence shareholder votes in favor of the replacement board members. The shareholders generally receive a table 14A, containing financial information and other data on the target company. If the fight by proxy involves the sale of the company, the calendar includes the granular terms of the proposed acquisition. And on the public relations front, buyers can issue opening salvos to raise public awareness.
The acquiring company generally contacts the shareholders through a third party attorney, who draws up a list of stakeholders and addresses each one individually, to present the case of the acquirer. If the shares are registered in the name of brokerage firms, the attorneys consult the shareholders of this company to influence their voting positions.
In either case, individual shareholders or brokerage firms then submit their votes to a designated entity, such as a stock transfer agent, who aggregates the information. The absorbing company then transmits the results to the general secretary of the target company before the general meeting.
But in most cases, prosecutors can review or challenge imprecise votes and report situations where shareholders have voted multiple times or neglected to sign their votes. Finally, potential members of the board of directors are approved or rejected based on the final vote count.
Key points to remember
- A proxy fight is the action of a group of shareholders joining forces to collect enough shareholder proxies to win a corporate vote.
- These voting offers could include replacing the company’s management or the board of directors.
- Proxy battles also emerge during corporate takeovers and mergers, particularly with hostile takeovers.
Involvement of shareholders in a fight for proxies
Since most shareholders do not wish to consider the options of directors, it can be difficult to generate interest in these matters. Shareholders often absently accept the recommendations sent to them, without examining the qualifications of the potential director or the main problems underlying the takeover.
Although the same level of disinterest often applies to acquisition votes, a proxy fight can favor the acquirer, if the poor financial results of the target company have a negative impact on the shareholders, in particular if the acquirer has solid ideas for making the company profitable for shareholders. For example, the acquirer may offer to sell some of the company’s underperforming assets or increase dividends in stocks.
In 2020, the U.S. Securities and Exchange Commission dramatically narrowed the scope of rule 14a-8 (i) (9), which allows companies to block shareholder proposals from voting. This action enabled activist investors to intensify their fight in the battles of corporate governance.
Over 80% of activist targets have market capitalizations of less than $ 1 billion.
Real example of proxy combat
According to Money-zine, in February 2008, Microsoft Corporation made an unsolicited offer to buy Yahoo for $ 31 per share. Yahoo’s board of directors said Microsoft’s offer underestimated the company, blocking negotiations between Microsoft and Yahoo executives.
On May 3, 2008, Microsoft withdrew its offer and less than two weeks later, the billionaire Carl Icahn launched an effort to replace the board of directors of Yahoo via a proxy contest.