FREE online courses on Mergers & Acquisitions - Chapter 7 - Proxy Fights

 

One last point to make about changes in ownership concerns the fact that shareholders can sometimes initiate a takeover attempt. Since shareholders have voting rights, they can attempt to make changes within a company. Proxy fights usually attempt to remove management by filling new positions within the Board of Directors. The insurgent shareholder(s) will cast votes to replace the current board.

 

 

Proxy fights begin when shareholders request a change in the board. The next step is to solicit all shareholders and allow them to vote by "proxy." Shareholders will send in a card to a designated collector (usually a broker) where votes are tallied. Some important factors that will influence the success of a proxy fight are:

 

1. The degree of support for management from shareholders not directly involved in the proxy fight. If other shareholders are satisfied with management, then a proxy fight will be difficult.
2. The historical performance of the company. If the company is starting to fail, then shareholders will be much more receptive to a change in management.
3. A specific plan to turn the company around. If the shareholders who are leading the proxy fight have a plan for improving performance and increasing shareholder value, then other shareholders will probably support the proxy fight.

 

Proxy fights are less costly than tender offers in changing control within a company. However, most proxy fights fail to remove management. The upside of a proxy fight is that it usually brings about a boost in shareholder value since management is forced to act on poor performance. It is worth noting that proxy fights are sometimes led by former managers with the Target Company who recognize what needs to be done to turn the company around. In any event, studies clearly show that changes in management are much more likely to occur externally (tender offers) as opposed to internally (proxy fights).