Define Proxy Fight
Proxy Fight or Contest – Explained – The Business Professor
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What is a Proxy Fight? A Little More on What is a Proxy ContestProxy Contests in Hostile TakeoversAcademic Research
A proxy fight (also known as a “proxy contest”, “proxy battle”, or “proxy war”) is an effort by the shareholder or group of shareholders of a corporation to convince other shareholders to cast their corporate votes (by granting a representative or proxy the authority to vote those shares) the way the urging shareholders prefer. The objective of the shareholders initiating the proxy contest is to secure the number of shareholder votes required to achieve the desired result (such as electing specific directors or approving a specific corporate action). How Does a Proxy Contest Work? Common shareholders (and some preferred shareholders) of a corporation have the right to vote for or against major actions affecting the corporation – such as:
changing of the corporate governance documents,
major mergers or acquisitions,
dissolution of the company,
sale of substantially all of a company’s assets, or
the election of directors.
Shareholders generally vote their shares by indicating their voting preference and assigning their voting rights to a representative, known as a “proxy”. The representative will show up to the shareholders’ meeting and vote in accordance with the shareholder’s instructions. As defined above, a proxy contest is when a shareholder or group of shareholders undertake an effort to convince other shareholders to grant their proxy vote in favor of a specific action. The most common form of proxy contest concerns the election of specific directors (members of the board of directors). In a corporation, the existing board members nominate individuals to fill vacant positions on the board of directors. The names of these individuals appear on the proxy ballots that are sent out to shareholders. This nominating function grants a significant advantage to the individuals nominated by the board. It is nearly a 100% certainty that these individuals will be elected, unless the shareholders are presented with other options and a reason to support those options. In a proxy contest for the election of directors, the group of shareholders initiating the proxy contest will either seek to include their nominees on the proxy ballot or contact shareholders directly with information and a request to write in the name of a specific candidate for the director position on the proxy ballot. If the shareholders initiating the proxy challenge are successful, they will elect their desired members to the board of directors. If successful in electing a majority of desired directors, the activist shareholder has effectively achieved control over the corporation. The new members will have the power to set corporate strategy, appoint new executive officers, elect a new chairman of the board, etc. Existing boards of directors fight hard to fend off activist investors seeking to initiate a proxy contest. They employ any number of anti-takeover tactics, such as:
Denying Proxy Access
Staggered Boards
Restricting Funding
Limiting Provisions in the Bylaws.
Proxy Contests in Hostile TakeoversProxy contests are often employed as part of a hostile takeover attempt. In such situations, another company seeks to purchase a target company. If the board of directors of the company is resistant to being taken over (as these directors will likely lose their positions after the acquisition), they reject the takeover proposal. The acquiring company then sends an offer for acquisition (along with relevant company financial and operational documents) on Schedule 14A to the shareholders of the target company. The acquiring company will generally employ the services of a proxy advisory firm to assist in the process of compiling the list of shareholders, contacting them, and presenting the acquiring firms proposal. As part of the proposal, the acquiring firm requests the right to vote as a proxy for the shareholders of the company. If the proxy contest is successful, the acquiring firm will be able to elect a majority of the company’s directors. Once elected, these directors will approve the acquiring company’s offer to acquire the target lated Topics
What is the role & rights of Shareholders in the corporation?
What are the variations on attributes of Ownership structure?
What are the fiduciary duties owed by shareholders?
When is a shareholder personally liable for corporate obligations?
How can shareholder enforce their rights (direct and derivative actions)?
What is the process for bringing a Derivative action?
What are corporate vote Proxies?
Proxy Fight or Contest Definition & Explanation
What is Shareholder Activism and the significance of Institutional Investors?
Academic Research
Corporate governance through the proxy contest: Evidence and implications, Ikenberry, D., & Lakonishok, J. (1993). Journal of Business, 405-435. This journal examines the long term performance of firms after take-over in Proxy Battles.
Proxy Contest Expenses and Shareholder Democracy, Latcham, F. C., & Emerson, F. D. (1952). W. Res. L. Rev., 4, 5. This paper examines the democracy of shareholder voting with analogies to a real democracy.
Further Insight into More Effective Stockholder Participation: The Sparks-Withington Proxy Contest, Emerson, F. D., & Latcham, F. C. (1951). Yale LJ, 60, 429.
Corporate operating performance around the proxy contest, Mukherjee, T. K., & Varela, O. (1993). Journal of Business Finance & Accounting, 20(3), 417-425. This paper examines the effect of a Proxy Fight on the operational and financial performance of a target firm.
The efficient monitoring role of proxy contests: an empirical analysis of post-contest control changes and firm performance, Borstadt, L. F., & Zwirlein, T. J. (1992). Financial Management, 22-34. This paper examines empirical data from 142 firms that were acquired after a Proxy Battle and analyses their performance post the hostile take-over.
The impact of financial factors on proxy contest outcomes, Hancock, G. D., & Mougoue, M. (1991). Journal of Business Finance & Accounting, 18(4), 541-551. This review discusses the influence of the financial performance of a target firm on the outcome of a Proxy Battle.
Proxy contest, board reelection, and managerial turnoveryes, the proxy contest outcome matters, Yen, G., & Chen, C. (2005). Managerial and decision economics, 26(1), 15-23. This paper sheds light on the importance of Proxy Contests, discusses why they matter by analysing empirical data from firms that have undergone board overhauls to emerge as more successful companies. When the dissidents have their say, the company performance improves over time.
The Work of the Inspectors of Election in the Montgomery Ward Proxy Contest, SPROWL, C. R. (1955). The Business Lawyer, 98-109.
Capital structure and outcome of proxy contest targets: An empirical study, Gao, N., & Everett Brooks, J. (2010). Managerial Finance, 36(4), 294-321. This paper studies the impact of capital structure changes in firms that were targets of unsuccessful Proxy Battles.
Corporate Behavior After the Proxy Contest for Control: The Short, Intermediate and Long Term, Mukherjee, T. (1992). Managerial Finance, 18(7/8), 77-94. This paper takes a look at the post Proxy Contest behavior of corporates in the immediate aftermath, the short term, and the long term. It concludes that successful Proxy Battles lead to improved performance while unsuccessful attempts further deteriorate the firms performance.
Hostile takeovers as corporate governance: A legal analysis of tender offer and proxy contest in China and Malaysia, Ali, H. M. (2014). Corporate Ownership and Control, 11(4 Continued 6), 558-566. This article takes a look at the Proxy Battles in Chinese and Malaysian firms with a deep analysis of the process, tenders issued, solicitation firms, and other techniques employed.
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How Do Proxy Fights Work? – Investopedia
A proxy fight occurs when a group of shareholders in a particular company attempts to join together to effect change in a particular area of corporate governance within that company.
Each individual proxy fight has the potential to be unique, but most proxy fights follow a common thread. The typical way that a proxy fight works is that shareholder activists are dissatisfied with a particular aspect of the company and seek change in that area; however, they often run into resistance from the company’s current board members. The dissatisfied shareholders then attempt to persuade other shareholders to allow them to use their proxy votes on a proposed change to the company’s board positions.
The shareholder activists typically attempt to remove board members that oppose their desired changes and install their own board member candidates. The new board members will be receptive to the changes proposed by the shareholder activists, making it easier for the activists to make those changes happen.
Proxy Fight – Overview, How It Works, and Examples
What is a Proxy Fight? A proxy fight, also known as a proxy contest or proxy battle, refers to a situation in which a group of shareholders in a company joins forces in an attempt to oppose and vote out the current management or board of directors. In other words, a proxy fight is a battle between shareholders and senior management for control of the company. It is also a strategy commonly employed in hostile takeoversHostile TakeoverA hostile takeover, in mergers and acquisitions (M&A), is the acquisition of a target company by another company (referred to as the acquirer) by going directly to the target company’s shareholders, either by making a tender offer or through a proxy vote. The difference between a hostile and a Does a Proxy Fight Work? Proxy fights are commonly initiated by dissatisfied shareholders of a company. In a proxy battle, shareholders convene with other shareholders to use their votes to pressure management and the board of directorsBoard of DirectorsA board of directors is a panel of people elected to represent shareholders. Every public company is required to install a board of directors. to make changes within the company. The shareholders typically pressure the board of directors by voting against them at the annual general meeting (AGM) example, in Guyana Goldfields’ proxy fight with its shareholders, the company lost the proxy battle, which resulted in the appointment of two new independent directors to the board and two other long-serving independent directors stepping fights are typically difficult to win as companies typically put various corporate governance tactics in place such as staggered boardsStaggered BoardA staggered board of directors, also known as a classified board, refers to a board that consists of different classes of directors. In a staggered board of and include restrictive requirements in its bylaws. Therefore, most proxy battles by shareholders are asons and Examples of Proxy FightsThere are many reasons for a proxy fight, but the main rationale is due to shareholders being unhappy with the current corporate governance and business decisions. Below are real-life examples of why shareholders wage proxy Motor Group vs. Elliott ManagementU. S. hedge fund Elliott Management Corporation was unhappy with Hyundai Motor Group’s dividend plan and its call-off of a corporate restructuring that Elliott believed lacked business rationale and adversely impacted ’s vs. Bandera PartnersActivist investor Bandera Partners pushed for restaurant operator Luby’s to change its heavy debt structure and turn around its declining same-store revenues and traffic. Bandera Partners was dissatisfied with the way management was navigating the Goldfields’ vs. ShareholdersShareholders of Guyana Goldfields were unhappy with the way management ran the business. The gold mining company faced immense pressure from shareholders due to poor performance – the amount of gold in proven and probable reserves at its Aurora mine in Guyana declined 1. 7 million ounces compared to management estimates from the prior mpbell Soup vs. Third PointActivist investor Third Point sent a letter to the chairman of Campbell Soup’s board blaming the leadership for the problems at the company and accused management of mismanagement, ill-devised strategies, and poor business apparent in each of the examples above, a common catalyst for a proxy fight is management dissatisfaction by aphical Representation of a Proxy FightThe following visually depicts a common proxy battle:Additional ResourcesCFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI’s Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to transform anyone into a world-class financial keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:Activist ShareholderActivist ShareholderAn activist shareholder is a shareholder of a corporation who attempts to use his or her equity stake in a company to achieve certain goalsIrrevocable ProxyIrrevocable ProxyAn irrevocable proxy is an enforceable power granted by the owner to another party to exercise his voting rights independently, without requiring his consent each time. Typically, most proxies are revocable, but some agreements may include specific clauses that require the proxy to be irrevocable for a specified Defense MechanismPre-Offer Defense MechanismPre-offer defense mechanism is a general term for a broad group of defensive strategies in M&A transactions. Essentially, the pre-offer defense mechanism is a preemptive strategy undertaken by a target company to protect itself from a possible bidding offer from a hostile TrustVoting TrustA voting trust is an arrangement where the voting rights of shareholders are transferred to a trustee for a specified period. The shareholders are then
Frequently Asked Questions about define proxy fight
Why is it called a proxy fight?
A proxy fight (also known as a “proxy contest”, “proxy battle”, or “proxy war”) is an effort by the shareholder or group of shareholders of a corporation to convince other shareholders to cast their corporate votes (by granting a representative or proxy the authority to vote those shares) the way the urging …
How do proxy fights work?
A proxy fight occurs when a group of shareholders in a particular company attempts to join together to effect change in a particular area of corporate governance within that company. Each individual proxy fight has the potential to be unique, but most proxy fights follow a common thread.
What is meant by proxy contest?
A proxy fight, also known as a proxy contest or proxy battle, refers to a situation in which a group of shareholders in a company joins forces in an attempt to oppose and vote out the current management or board of directors.
