The era of hostile corporate takeovers may be over, but the proxy fight lives on.
Orange County has seen its share of proxy fights, which can be anything from a battle for the control of a company's board of directors to a vote on a management proposal to increase executive compensation.
Earlier this year, dissident shareholder Rafi Khan lost a bid to take control of Costa Mesa-based ICN Pharmaceuticals from founder Milan Panic. And just last week, two other local companies--Gateway Communications in Irvine and US Facilities Corp. in Costa Mesa--faced the prospect of proxy fights when shareholder groups threatened to take control of the companies' boards.
John Wilcox, 51, chairman of New York proxy solicitation firm Georgeson & Co., said such fights are less frequent than in the 1980s, but shareholders are still very involved. And soliciting proxies--the forms used to cast votes in corporate elections--is easier than before, thanks to rule changes made by the U.S. Securities and Exchange Commission in October, 1992.
At any given time, Georgeson has about 650 clients--either company executives who want to stay in control or dissident shareholders who want to change a corporation's leadership or its management policies.
More frequently, though, companies hire Georgeson--or competitors such as D.F. King & Co., also based in New York--to find out who its shareholders are and why they are buying or selling the company's stock, Wilcox said.
In a telephone interview last week, Wilcox spoke about proxy fights, how they work and what is involved.
QUESTION: What distinguishes a proxy fight from a takeover attempt such as a tender offer?
ANSWER: A tender offer differs from a proxy fight in that cash is put down on the table. Cash is king. If you've got arguments competing with cash, cash will always win. In a proxy fight, it's much more like a political campaign. Two sides are presenting arguments and vying for the votes of shareholders at the annual shareholders meeting. Not all proxy fights are for control of a board too. Many deal with how shareholders should vote on management proposals.
Q: How does a proxy fight usually start and then proceed?
A: There are some variations because of the new proxy rules. Let me explain what has happened with the 1992 proxy rule amendments. Those amendments make it possible for a shareholder to conduct a communications campaign that is unregulated so long as the shareholder is not seeking proxy voting authority on a proxy card of his own.
That has created a hybrid kind of communications campaign that has come to be known as a "just vote 'no' campaign." In fact, it can be used for a lot of other things than getting shareholders to vote "no" on management proposals. It can be used in support of shareholder proposals to pressure management to do certain things.
Under the old rules, any communication that influenced the way somebody voted in an election was regulated. You had to get permission from the SEC and so forth. Under the new rules, things are much more liberal and flexible for the shareholder.
You have to take that into account. Last year, in the 1992-93 proxy season, the most publicized use of this type of campaign was the State of Wisconsin Investment Board's effort to influence shareholders to withhold their votes from those directors of Paramount Communications who were on the compensation committee. The State of Wisconsin Investment Board argued that the CEO was overpaid given the performance of the company. Therefore, the directors who worked on the committee should have their votes withheld.
That campaign was unsuccessful, but it did achieve a fair amount of publicity. It could not have occurred under the old rules.
Q: The problem with being regulated was that it slowed things down?
A: It slowed the shareholder down, and there were some costs involved in preparing filings and getting lawyers involved and collecting information for the SEC documents. It was rigid; now it's more flexible.
Q: What kinds of costs does a company incur in a proxy fight?
A: Usually, proxy fight costs include lawyers, printing and mailing, proxy solicitors, telephone expenses for calls to shareholders. If there is litigation, then you get open-ended legal costs. There may be advertising and public relations costs as well. . . .
Costs are also influenced by who the shareholders are. Proxy costs have become easier as more stock is held by institutional investors. Then you can go to the largest holder and reach a majority of shares without getting involved in an expensive, broad-based campaign aimed at individual shareholders.
Q: When were proxy fights most popular?
A: The peak years were 1988 through 1990. These new rules made it much cheaper to wage proxy fights like "just vote 'no' " campaigns that can have a lot of impact, such as draw attention to a company, send a message to management or destabilize it.