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 takeovers.
How 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 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).
For 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 down.
Proxy fights are typically difficult to win as companies typically put various corporate governance tactics in place such as staggered boards and include restrictive requirements in its bylaws. Therefore, most proxy battles by shareholders are unsuccessful.
Reasons and Examples of Proxy Fights
There 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 battles.
Hyundai Motor Group vs. Elliott Management
U.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 shareholders.
Luby’s vs. Bandera Partners
Activist 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 company.
Guyana Goldfields’ vs. Shareholders
Shareholders 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 year.
Campbell Soup vs. Third Point
Activist 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 decisions.
As apparent in each of the examples above, a common catalyst for a proxy fight is management dissatisfaction by shareholders.
Graphical Representation of a Proxy Fight
The following visually depicts a common proxy battle:
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