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Proxy fight

A proxy fight occurs when a major shareholder decides to challenge existing management usually over a key issue such as divesting under performing businesses or cutting costs.

Expanded Definition

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 competiton 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.

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