The OPTIMIZER’s sister-company, CT Hagberg LLC, provided the Independent Inspector of Election in September at what we believe was the second Virtual-Only proxy contest to date, at a small bank in the Midwest.
Three of the bank’s investors, with roughly 30% of the stock - who had previously sought a merger with their larger nearby-neighbor - proposed a single candidate of their own for the three open board seats, and offered two proposed governance amendments, which the target company also opposed.
As we always advise potential clients before we are retained, “Hope for the best, but prepare for the worst” we told them. “And never under-estimate the opposition in a proxy contest, since no one ever proceeds unless they believe they have a ‘path to victory’ that might come as a total surprise to the target company.”
As always, we engaged in elaborate due diligence drill with the subject company’s Transfer Agent, Tabulating Agent and VSM-facilitator - AST - and with company counsel - carefully documenting what we needed to see, and exactly what we would need to have in hand from AST, and from both sides in the fight - to physically “inspect” before certifying the vote. And we virtually-attended both a rehearsal meeting and the actual one via a phone line and via the Voting app.
Even when the opposition acted surprised when they discovered their candidate was not included on the company’s own proxy card (Duh!) we stood carefully on guard for something new and unexpected - like a last-minute drop-off of proxy cards collected in an ‘exempt solicitation’ - or maybe a bunch of last-minute votes via the VSM app.
We drafted - and insisted that there be - a “Universal Ballot” on the meeting-app; one that would allow all voters to mix and match among the four candidates, and that warned them prominently - on the ballot and also in the meeting script - to vote for no more than three candidates. (And actually, we don’t think that any of the VSM apps that are out there are capable of posting two different ballots anyway - nor should anyone be trying to do so,)
After our due diligence drills we were quite certain that we could receive and review any and all hard-copy votes - and a detailed tabulation of all votes received by mail, phone, Internet or over the meeting-app - and to issue a Preliminary Report on the Voting within a day or two after the meeting. If either side were to have questions about any of the votes, we were certain that we could allow them to view any and all items they wished to see - over their own computer screens - to assure themselves that we had recorded the “winning votes” correctly.
Happy day for the target company…the opposition never drew down any Legal Proxies in time to vote in real-time - and never drummed up any proxies other than their own. They actually failed to cast any votes for their own candidate (!) merely marking the Abstain box on the target company’s proxy cards they held, thereby handing the company 100% of the votes cast for Directors. The dissidents accounted for almost all of the votes in favor of their proposed bylaw amendments, giving the company a 70-30 victory on the proposed amendments… but not having spent a dime of their own money on legal advice or proxy solicitors…And, oh shucks, sparing the IOEs the fun and excitement of a formal challenge to the voting.
The big takeaway here is that with the right plan, proxy fights can be handled just as thoroughly in a virtual-only-mode as with an in-person review - with far less fuss and muss than there usually is in those often-overheated in-person events.
Just For The History Books:
The Three Meetings In Our 55 Years Of Meeting-Going Where Minds Were Made Up And Outcomes Were Decided By Votes In-Person At The Meeting Itself: Three Of 50,000+ Times!
The first incident we saw was the ITT meeting of 1997 to approve what was then a mega-merger of Starwood Lodging and ITT. Over a dozen reps from big hedge funds came armed with their proxies - and didn’t mark them, much less hand them in, until they had heard from and been personally reassured by the CEO’s of both firms, whereupon the merger was handily approved.
The second was at a hotly contested election to “open up” a big NYC-based closed-end mutual fund, where a majority of the holders were present in person. But almost all of them had Voting Instruction Forms rather than actual proxies or Legal Proxies in hand. As a result, the Inspector (your editor-in-chief) had to declare that a quorum was not present, and, in the scramble that followed, it became clear that most of the attendees - whether pro or con - did not have the required paperwork to cast their votes, and hadn’t the slightest idea how to lay hands on it! So the meeting adjourned until well after lunchtime, during which time, after a bit of coaching from the IOE on what to do, the shareholder reps made frantic phone calls, borrowed fax lines from the meeting-site host - and a few actually walked to local offices of their fund custodians to obtain Legal Proxies. THEN…when the preliminary results were announced, approving the open-ending, a lawyer who’d come from Delaware that morning - bearing his own fund’s proxies, plus a dozen other proxies that had been entrusted to him by other investors…and more than enough to sink the deal… came steaming up, wild-eyed, to demand that the polls be reopened to count the votes he’d forgotten to hand in and swearing to sue the IOE if he failed to comply… “Fat chance” said we, “You will never win - and as to suing anyone - what will your buddies back in Delaware say when they find out you failed to vote their shares? It’s YOU, not we, that would likely get sued over this!”
The third incident was at a contested meeting in Seattle, about ten years ago, where a dissident director-candidate seemed to have a tiny edge in gaining one of the two open board seats… Until, that is, he got up to speak…and did such a terrible job of expounding on his case that three attendees hurried to the Inspector’s desk - while he was speaking - to revoke their earlier votes in his favor.
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