Corporate Securities Info
Proxy fight
By Raul J. Palabrica
Philippine Daily Inquirer
First Posted 04:53:00 05/09/2008
From the look of things, except for the issue of access to corporate records, the annual stockholders’ meeting of power retailer Manila Electric Co. (Meralco) on May 27 will be no different from those in previous years.
The Lopez family, which owns 33.4 percent of the country’s biggest power distributor, is expected to retain its majority in the board of directors.
The government—the company’s second biggest stockholder by virtue of its 33-percent stockholdings—has denied reports that it plans to oust the Lopezes from their management pedestal.
Under our laws, stockholders who own less than 51 percent of the capital stock, but are able to get the proxy (or authority to vote the stocks) of other stockholders, can gain control of a corporation.
Thus, for example, through this mechanism the heirs of the late San Miguel Corp. chief, Andres Soriano Sr., ran the beverage and food conglomerate for decades while owning only 20 percent, at the most, of its stock.
Banking on the good reputation of the family patriarch who built the company,
the rest of the stockholders gave his heirs control over it through their proxies.
During the Soriano family’s heyday, no proxy war to unseat them succeeded, until business tycoon Danding Cojuangco came into the picture.
Solicitation
Depending on the objective, the proxy system is an effective means for gaining corporate advantage.
For minority stockholders whose votes if counted separately would hardly matter, proxies provide the opportunity to pool their shares to be able to elect one of their own to the board of directors.
For stockholders who own sizeable shares, but not enough to elect them as directors, securing the proxies of a select number of stockholders to shore up their voting strength assures their continued stay in the board.
A proxy fight in a corporation where stockholders number in the thousands or consist of investment companies, holding firms, pension plans and big-league investors can be expensive and bruising.
In the first place, the stockholders-directors who stand to lose their posts (and accompanying perks) if “outsiders” win the proxy war will not take the threat to their comfort zone sitting down.
They will use all available arguments and measures, both legal and extralegal, to prevent the proxy solicitation from succeeding, much less, getting off the ground.
Stockholders' list
The most critical element in a proxy fight is the list of the names, addresses and shareholdings of the stockholders.
This information will give the proxy solicitor an idea on who among the stockholders hold the shares that are needed to get the majority in the board.
If the votes or proxies of 30 key stockholders will be sufficient for that purpose, the solicitor need not waste his time running after the rest of the stockholders.
However, getting that list from the corporation or its transfer agent (a company that records and monitors the movement of the stocks of client corporations) is not going to be easy.
No doubt, the facts and figures about a company’s stockholders form part of the records that stockholders are, by law, entitled to examine, subject to certain conditions.
There is nothing confidential about this information that would justify their withholding from a stockholder even if the purpose of the request is to initiate a proxy fight.
But don’t expect the data to be given on a silver platter. After all delaying tactics have been exhausted, the requesting party will be required to personally examine and copy the list (often under the most inconvenient environment possible), or pay the transfer agent’s costs of collating and printing them.
It has to be done that way because if the information is made available free of charge to one stockholder, the same treatment must be given to similarly situated stockholders.
Expensive
With the list at hand, the next phase of the proxy war would be getting in touch with the stockholders whose shares are needed to meet the required benchmark on stockholder votes.
The solicitation of proxies is usually done through letters, telephone calls or meetings.
In earlier proxy fights involving prominent business personalities, newspaper advertisements and press conferences were even used to drum up support for the effort.
Time is of the essence in this activity because there are deadlines to be met in the submission and validation of the proxies by the corporate secretary.
While the proxy campaign is going on, the directors who may be adversely affected by such action will definitely take counter-moves to discredit the motives of the solicitation.
The “insiders” will also launch their own drive to fortify their voting strength and prevent their ouster from the board.
The odds are not even in a proxy fight.
The outsiders have to use their own money for the effort, while the insiders have access to the resources of the company to protect their turf and the costs for that defense can be booked as “legitimate business expenses.”
* * *
For feedback, please write to rpalabrica@inquirer.com.ph.
|
