Proxy fights 101

I asked Michael Flaherty, an Axios Pro editor who has covered activist investing for years, to explain how proxy fights work.

Here's his quick take ...

• First, activists find an undervalued stock. They won't launch a campaign unless they see a positive return for the effort. The best defense against activists is a rising stock price.
• Nobody wants a proxy fight. They're expensive and time consuming. So activists will try to get the company to make changes the investors deem necessary to jack up the stock price. Sometimes the company heeds the advice.
• Often, though, the company says, "Thanks for the advice, but we got this." From there, the agitation escalates.
• The two sides may eventually decide the private and public bickering over strategy isn't worth it, and they'll strike a settlement agreement. Usually that's in the form of a board seat or two and some strategy changes. Peace time follows, until next year anyway.
• If the two sides are far apart, and no settlement is possible, activists have a choice to make: stay in the stock and be a nuisance; sell and move on; or name a director slate, file a proxy and launch a full-on fight.
• Once the proxy fight is on, it's all about winning the hearts and minds of shareholders who will vote for the company's directors at the annual general meeting.

• Shareholders can vote early or in-person at the meeting, and they can change their vote up to the last minute. A win for activists or the company is getting all or most of their directors elected.

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