Proxy fight

Not to be confused with Proxy war.

A proxy fight or proxy battle is an unfriendly contest for the control over an organization. The event usually occurs when corporation's stockholders develop opposition to some aspect of the corporate governance, often focusing on directorial and management positions. Corporate activists may attempt to persuade shareholders to use their proxy votes (i.e., votes by one individual or institution as the authorized representative of another) to install new management for any of a variety of reasons. Shareholders of a public corporation may appoint an agent to attend shareholder meetings and vote on their behalf. That agent is the shareholder's proxy.^[1]

In a proxy fight, incumbent directors and management have the odds stacked in their favor over those trying to force the corporate change. These incumbents use various corporate governance tactics to stay in power, including: staggering the boards (i.e., having different election years for different directors), controlling access to the corporation's money, and creating restrictive requirements in the bylaws. As a result, most proxy fights are unsuccessful. However, it has been recently noted that proxy fights waged by hedge funds are successful more than 60% of the time.^[2]

Examples

An acquiring company, frustrated by the takeover defenses of the management, may initiate a proxy fight to install a more compliant management of the target.
An early history of proxy fighting, detailing such 1950s battles as the fight for control of some of America's largest corporations, including the Bank of America and the New York Central Railroad, can be found in David Karr's 1956 volume, Fight for Control.
Stockholder dissidents opposed to an impending takeover in the view that it will dilute value may also use a proxy fight to stop it. An example of a proxy fight took place within Hewlett-Packard, when the management of that company sought to take over Compaq. Opponents of the Compaq takeover lost the fight. The management, under Carly Fiorina, remained in place, and the merger went ahead.^[3]
In the absence of any looming takeover, proxy fights can come about because dissidents are unhappy with management, as with Carl Icahn's effort in 2005–2006 to oust a majority of the board of Time Warner.^[4]

Key Players

Due to their out-sized influence with many institutional investors, proxy advisors play a key role in many proxy fights. In many cases, the proxy firms end up determining the result of the contest.^[5]

References

↑ Klein, Ramseyer, and Bainbridge. Business Associations: Cases and Materials on Agency, Partnerships, and Corporations. (7th Ed.) Foundation Press.
↑ Klein, April and Zur, Emanuel. 2009. Entrepreneurial shareholder activism: Hedge funds and other private investors. Journal of Finance 64(1): 187-229.
↑ HP declares proxy win
↑ Frank Biondi Joins Carl Icahn in Time Warner Proxy Fight
↑ Protecting Shareholders From Activist Proxies HP declares proxy win

External links

Corporate finance and investment banking

Capital structure

Transactions
(terms / conditions)

Equity offerings	At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting

Mergers and acquisitions	Buy side Control premium Demerger Divestment Drag-along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag-along right Takeover Reverse Tender offer

Leverage	Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance

Valuation

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