Business, Legal & Accounting Glossary
A proxy fight is a strategy typically used during a hostile takeover. A proxy fight occurs when the acquiring company tries to persuade shareholders to use their proxy votes to install new management, which the acquiring company hopes will be more open and receptive to the takeover. If the shareholders agree to the proxy fight, they’ll attempt to gather enough proxies to win a corporate vote. A proxy fight is a way for the acquiring company to more easily take over its target by forcing the board to accept the deal’s terms through the use of proxies. A proxy fight may also be called a proxy contest. Though common, a takeover need not be the catalyst for a proxy fight. A proxy fight may also occur when a group of shareholders opposes the company’s management and/or position on particularly significant matters.
A proxy fight occurs when a major shareholder decides to challenge existing management usually over a key issue such as divesting underperforming businesses or cutting costs.
If management fails to satisfy the shareholder’s complaints he can attempt to organize a group of shareholders to vote their proxies for his slate of members of the board of directors or for shareholder initiatives. The competition for these proxies is known as a proxy fight. Usually, the proxies are to be voted at the company’s annual meeting, but if the issue is time-critical, sometimes a special shareholder meeting is called.
The terms of the corporation by-laws usually determine how easy it is for the raider to take over the corporation. Various poison pill defenses are usually in place to make hostile takeovers difficult. A common one is interlocking director terms, making it impossible to change the complete board composition at a single annual meeting. But control of the board can result in favorable changes to the by-laws as well as changes in management and the ability to select a new CEO.
Other poison pill defenses include golden parachutes and sometimes warrants issued when under attack that allow shareholders to double the number of outstanding shares.
Although the methods described are those of a corporate raider or a hostile takeover, sometimes the desire for change or reform comes from within as from a group of dissident shareholders. They are not necessarily raiders, but success does suggest a change in management will follow. The end result may be essentially the same even though the company is not acquired by an outsider in the process.
A proxy fight occurs when a major shareholder decides to challenge existing management usually over a key issue such as divesting underperforming businesses or cutting costs.
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This glossary post was last updated: 29th November, 2021 | 0 Views.