Proxy solicitations are efforts made by a corporation or interested parties to persuade shareholders to vote in a particular way on certain issues during a shareholders’ meeting.
The term “proxy” refers to the method by which a shareholder appoints another person or entity to vote on their behalf at the meeting. The shareholder gives this individual or entity the “proxy authority” to represent them and to vote according to their preferences.
Proxy solicitations often occur when there are crucial matters at stake that require shareholder approval, such as mergers and acquisitions, changes to the company’s charter or bylaws, or election of board members.
Companies will typically send out a proxy statement to all shareholders explaining the matters to be voted on, and this document will include a proxy card which the shareholder can use to cast their votes without having to physically attend the meeting.
Sometimes, a group of shareholders or an outside party (like another company or an activist investor) may also engage in proxy solicitations. They might do this if they’re unhappy with the company’s current management or strategy and want to persuade other shareholders to vote for changes. These parties must follow specific rules and regulations laid out by securities regulatory authorities to ensure the process is fair and transparent.
For example, activist investor Carl Icahn has often engaged in proxy solicitations to push for changes at companies where he has taken a stake. These have included attempts to change the composition of the board, to push for strategic shifts, or to prompt a sale of the company.
Example of Proxy Solicitations
Let’s say ABC Corp, a publicly-traded company, plans to acquire DEF Inc., another public company. The acquisition would significantly change the structure of ABC Corp, therefore, it requires the approval of ABC Corp’s shareholders.
To proceed with the acquisition, ABC Corp will send a proxy statement to all its shareholders. This document details the proposed acquisition, the terms of the deal, how it would impact ABC Corp, and why ABC Corp’s board believes it’s in the best interest of the company and its shareholders.
The proxy statement will also include a proxy card. On this card, shareholders can indicate how they wish to vote on the proposed acquisition. They can choose to vote in favor of the acquisition, against it, or abstain from voting.
Once they’ve made their choice, shareholders return the proxy card to ABC Corp, which will tally the votes. This way, even shareholders who can’t or don’t want to attend the meeting in person can still have their voices heard.
Now, suppose a group of shareholders believes the acquisition would be detrimental to ABC Corp. They might decide to engage in a counter-proxy solicitation. They would contact other shareholders, explain why they’re opposed to the acquisition, and encourage them to vote against it.
In both these instances—ABC Corp’s original solicitation and the shareholders’ counter-solicitation—the parties involved are trying to sway the shareholders’ votes. These are examples of proxy solicitations.