Another means to obtain control is a —a procedure involving corporate voting. Elections for seats on the board of directors are generally held at the annual stockholders’ meeting, perhaps four to five months after the end of the firm’s fiscal year. After purchasing shares in the target company, the acquirer nominates a slate of candidates to run against the current directors. The acquirer generally hires a proxy solicitor, who contacts shareholders prior to the stockholders’ meeting, making a pitch for the
insurgent slate. Should the acquirer’s candidates win a majority of seats on the board, the acquirer will control the firm. And as with tender offers, effective control can often be achieved with less than a majority. The acquirer may just want to change a few specific policies of the firm, such as the firm’s capital budgeting program or its diversification plan. Or it may simply want to replace management. If some of the original board members are sympathetic to the acquirer’s plans, a few new board members can give the acquirer a working majority. For example, consider Carl Icahn’s proxy fight with Blockbuster. Carl Icahn’s group was Blockbuster’s biggest stockholder in early 2005, owning 9.7 percent of the firm’s Class A stock and 7.7 percent of the firm’s Class B shares. With the company losing over $1 billion in 2004, Mr. Icahn publicly criticized Blockbuster, calling for a number of changes involving spending cuts. He, along with two of his associates, won seats on the Blockbuster board in 2005. Though his group did not win a majority on the seven-member board, pundits argued that he would be able to move the company in his direction. Whereas mergers end up with the acquirer owning all of the target’s stock, the victor in a proxy fight does not gain additional shares. The reward to the proxy victor is simply share price appreciation if the victor’s policies prove effective. In fact, just the threat of a proxy fight may raise share prices because management may improve operations to head off the fight. For example, Mr. Icahn had threatened a proxy fight with Kerr-McGee (KM), withdrawing in April 2005 when the stock price rose in response to KM’s new policies. 29.8 Defensive Tactics Target firm managers frequently resist takeover attempts. Actions to defeat a takeover may benefit the target shareholders if the bidding firm raises its offer price or another firm makes a bid. Alternatively, resistance may simply reflect self-interest at the shareholders’ expense. That is, the target managers might fight a takeover to preserve their jobs. Sometimes management resists while simultaneously improving corporate policies. Stockholders can benefit in this case, even if the takeover fails. In this section, we describe various ways in which target managers resist takeovers. A company is said to be “in play” if one or more suitors are currently interested in acquiring it. It is useful to separate defensive tactics before a company is in play from tactics after the company is in play.
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