December 23, 2022

Universal Proxy: Lessons From the First Proxy Contest

This recent memo from Goodwin’s Sean Donahue takes a look at some of the lessons learned from the first proxy contest conducted after the effective date for the universal proxy rules. The contest pitted activist investor Land & Buildings against Apartment Invesment and Management.  L&B nominated two directors, and one was elected to the Aimco board. Sean points out that ISS’s recommendation that shareholders vote for one of L&B’s two nominees may have played a significant role in the outcome – that candidate received twice as many votes as the company’s nominee.

Many have predicted that proxy advisors will become more influential under the new regime, so it wouldn’t be surprising if ISS’s recommendation proved decisive.  But not everything went as observers may have expected.  For instance, many have predicted that it may be possible to conduct a proxy contest “on the cheap” under the new rules. The memo says that wasn’t the case with this fight:

Many observers have asserted that the universal proxy regime would significantly reduce the cost of proxy contests. We have been skeptical of this view as a shareholder still has to prepare an advance notice of nomination, file a proxy statement, and furnish a proxy statement and proxy card to shareholders having at least 67% of the voting power. We also believe that economic activists will conduct meaningful solicitation efforts that go beyond the SEC’s minimum solicitation requirements as their goal is to be victorious.

In the Aimco proxy contest, according to L&B’s proxy statement, it estimated that the cost of the proxy contest would be $1,000,000. Notably, at the time it filed its definitive proxy statement, it disclosed that it had only spent $200,000 on the proxy contest meaning that most of its costs were back-end loaded.

The memo goes on to note that, by way of comparison, L&B ran a proxy contest earlier this year before universal proxy kicked in & estimated that the cost of that proxy contest would be $1,200,000, of which $500,000 was spent prior to filing the definitive proxy statement.

Unless Delaware overrules Revlon or something equally significant happens next week, this will my final blog of the year. Thanks so much to everyone for reading my ramblings and passing on your suggestions and comments.  Merry Christmas & Happy Hanukkah to everyone who celebrates those holidays, and best wishes for a healthy and prosperous New Year to all!  I hope to see everyone back here in 2023.

John Jenkins