June 6, 2011

Fewer Proxy Contests Are Reaching a Vote

Here’s analysis from Chris Cernich of ISS’s M&A Edge Research: According to activists and advisors, the amount of activist activity is robust, but many potential proxy contests are being settled before they ever go definitive. There isn’t great visibility into these proxy challenges until the hostilities go public, but historically, a little more than 60 percent of the contentious situations have settled before they got to an ISS recommendation.

This year, the number of operating/governance proxy contests going to a shareholder vote is substantially below even last year’s numbers, and last year was a four-year low. Assuming the one contest slated for June doesn’t get resolved between now and then, there will be nine contests in the first half of this year. That compares to 14 in the first half of last year, and 25 in the first half of 2009.

There is some suggestion that the activist energy is going into contested M&A transactions–in some cases agitating against agreed deals in the belief that there is more value in the recovery on fundamentals than in the negotiated price. The proxy contests at Fisher Communications and at Mentor Graphics went to a vote earlier this month. Icahn Associates won all three contested seats at Mentor Graphics by “a meaningfully high margin.” Mentor’s shares went up 7 percent on the news–Icahn was running on a “sell the company” platform, so there may now be some arbitrageur presence in the stock as a result of his win.

At Fisher, FrontFour Capital won two of four seats. Fisher’s corporate governance allows for cumulative voting, and FrontFour–which owned a 3.5 percent stake–was publicly backed by a 27 percent shareholder, so it was guaranteed at least one seat. In an M&A proxy contest on May 18 at Pulse Electronics–where Bel Fuse was running two directors, after Pulse rejected Bel’s offer to buy the company–the incumbent slate won reelection with more than 87 percent of votes cast.