Proxy Fight: A Showdown Between Shareholders And Management
What is a proxy fight? A proxy fight is a strategy used by shareholders who want to change something in the company, such as its policies, board members, or even its ownership. Have you ever wondered what happens when a group of unhappy shareholders decides to challenge the leadership of a company? This is called a proxy fight, and it can get very intense and dramatic. They do this by soliciting other shareholders to give them their proxy votes. Which are the rights to vote on their behalf at shareholder meetings. By collecting enough proxy votes, they can try to outvote the current management and take control of the company.
Proxy Fight As Corporate Takeovers
Proxy fights are often seen in corporate takeovers, especially hostile ones. When an outside party wants to buy a company that is not willing to sell, they may resort to a proxy fight to persuade the shareholders to accept their offer. They may also try to replace the existing board of directors or senior executives with their own nominees. Who are more likely to approve the deal. This way, they can bypass the resistance of the management and gain access to the company’s assets and resources.
Proxy fights can be very costly and time-consuming for both sides. They may involve hiring proxy solicitors, launching media campaigns, filing lawsuits, and holding shareholder meetings. They may also create uncertainty and instability for the company, its employees, customers, and partners. However, proxy fights can also have positive effects, such as increasing shareholder activism, improving corporate governance, and enhancing shareholder value.
Famous Proxy Fight Example
One famous example of a proxy fight was the battle between Carl Icahn and Yahoo in 2008. Icahn was an activist investor who owned a large stake in Yahoo and wanted the company to sell itself to Microsoft, which had made a $44.6 billion bid earlier that year. Yahoo’s board rejected the offer, saying it undervalued the company. Icahn then launched a proxy fight to oust the board and force them to accept the deal. He nominated his own slate of directors and urged other shareholders to support him. However, he eventually settled with Yahoo and agreed to drop his proxy fight in exchange for three board seats and a say in the company’s strategy. After 15 years Yahoo is worth $33.4 billion so we can all agree it was a pretty bad decision to not sell it.
If you are interested in learning more about proxy fights and how they work, you might want to check out this book: The Art of War for the New Millennium: How Sun Tzu’s Ancient Strategies Can Lead You to Victory in Business and Life by Dan Lok. In this book, Lok applies the principles of Sun Tzu’s classic military treatise to modern business scenarios, including proxy fights. He shows how you can use Sun Tzu’s wisdom to win any conflict or negotiation, whether you are an investor, an entrepreneur, a manager, or an employee.
Here is a passage from the book that relates to proxy fights:
“Sun Tzu said: ‘The supreme art of war is to subdue the enemy without fighting.’ This is especially true in proxy fights, where you are trying to win over the hearts and minds of the shareholders. You don’t want to engage in a direct confrontation with your opponent, because that will only waste your time and resources. Instead, you want to use persuasion, influence, and diplomacy to sway the shareholders to your side. You want to present yourself as a credible and trustworthy alternative to the current management, and show them how you can create more value for them. You also want to expose your opponent’s weaknesses and flaws, and make them look incompetent and dishonest. By doing this, you can undermine their authority and legitimacy, and make them lose their support base.”
How Proxy Fights Work
Sometimes, shareholders are not happy with how a company is run. They want to change things, but the board of directors won’t listen. What can they do? They can start a proxy fight!
A proxy fight is when shareholders try to convince other shareholders to let them use their votes to elect new board members who will do what they want. It’s like a battle for control of the company.
To win a proxy fight, both sides need to persuade as many shareholders as possible. They send them a document called a proxy statement, which has all kinds of information about the company and the proposed changes. If the proxy fight is about selling the company, the proxy statement will also have more details about the deal.
But sending a proxy statement is not enough. The acquirer also hires a proxy solicitor, who is like a salesperson for their cause. The proxy solicitor finds out who owns the shares and contacts them directly. They try to convince them to vote for the new board members. If the shares are held by brokers, they talk to them too.
The shareholders then cast their votes and send them to a stock transfer agent, who counts them and reports the results. But sometimes, there are problems with the votes. They might be unclear, duplicated, or unsigned. The proxy solicitor can check and challenge these votes if they think something is wrong.
The final step is the shareholders’ meeting, where the new board members are approved or rejected based on the vote count. The winner of the proxy fight gets to run the company their way. The loser has to accept defeat or try again next time.
Special Considerations
Let’s be honest: shareholders are not always excited about voting for new leaders. They don’t care much about who runs the company, as long as they get their money. They follow the suggestions they get in the mail, without looking at the candidates or the issues.
But sometimes, a proxy fight can change that. A proxy fight can be good for the acquirer if the target company is doing badly and hurting the shareholders. The acquirer can offer a better plan to make the company profitable again. They can say they will sell some of the bad assets or give more dividends to the shareholders.
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FAQ
1. What Is A Proxy Fight?
A proxy fight is a strategy used by shareholders who want to change something in the company, such as its policies, board members, or even its ownership. They do this by soliciting other shareholders to give them their proxy votes, which are the rights to vote on their behalf at shareholder meetings. By collecting enough proxy votes, they can try to outvote the current management and take control of the company.
2. Why Do Proxy Fights Happen?
Proxy fights happen when there is a disagreement or conflict between the shareholders and the management of a company. This can be due to various reasons, such as poor performance, strategic differences, ethical issues, or takeover attempts. Proxy fights are often seen in corporate takeovers, especially hostile ones. When an outside party wants to buy a company that is not willing to sell, they may resort to a proxy fight to persuade the shareholders to accept their offer. They may also try to replace the existing board of directors or senior executives with their own nominees, who are more likely to approve the deal.
3. How Do Proxy Fights Work?
To start a proxy fight, the dissident shareholders need to file a proxy statement with the Securities and Exchange Commission (SEC), which is a document that explains their reasons and goals for the proxy fight. They also need to nominate their own slate of directors and propose any other changes they want to make in the company. The proxy statement is then sent to all the shareholders of the company, along with a proxy card that allows them to vote for either the dissident or the incumbent board.
The incumbent board also files its own proxy statement and proxy card, defending its position and asking the shareholders to support it. Both sides may also hire proxy solicitors. Who are agents that contact the shareholders directly and try to persuade them to vote for their side. They may also launch media campaigns, file lawsuits, and hold shareholder meetings to influence the outcome of the vote.
The shareholders then cast their votes and send them back to a stock transfer agent, who counts them and reports the results. The side that gets more votes wins the proxy fight and gets to elect its board members and implement its changes in the company.
4. What Are The Benefits And Drawbacks Of Proxy Fights?
Proxy fights can have both positive and negative effects on the company and its stakeholders. Some of the benefits are:
- Increase shareholder activism and involvement in corporate governance.
- Improve the performance and efficiency of the company by bringing new ideas and perspectives.
- Enhance shareholder value by unlocking hidden potential or creating synergies with other companies.
Some of the drawbacks are:
- Be very costly and time consuming for both sides.
- Can create uncertainty and instability for the company, its employees, customers, and partners.
- Damage the reputation and credibility of the company and its leaders.
5. What Are Some Examples Of Proxy Fights?
Proxy fights are quite common in the business world. Some of the most famous ones are:
- The battle between Carl Icahn and Yahoo in 2008. Icahn wanted Yahoo to sell itself to Microsoft, which had made a $44.6 billion bid earlier that year. Yahoo’s board rejected the offer, saying it undervalued the company. Icahn then launched a proxy fight to oust the board and force them to accept the deal. He nominated his own slate of directors and urged other shareholders to support him. However, he eventually settled with Yahoo and agreed to drop his proxy fight in exchange for three board seats and a say in the company’s strategy.
- The battle between Nelson Peltz and Procter & Gamble in 2017. Peltz was an activist investor who owned a 1.5% stake in P&G, one of the world’s largest consumer goods companies. He wanted P&G to restructure its business into three units, cut costs, innovate faster, and improve its market share. P&G’s board resisted his proposals. They said they were already doing those things. Also, Peltz’s plan would disrupt their operations and hurt their long-term growth. Peltz then launched a proxy fight to get himself elected to P&G’s board. He claimed he had won by a narrow margin of 43,000 votes out of 2 billion casted. However, P&G challenged his victory and said it had won by 6 million votes. After a recount by an independent firm, P&G was declared the winner by 500,000 votes. Peltz conceded defeat but was later invited by P&G to join its board as an advisor.
