What is a Proxy Fight?

The scramble for agency rights refers to different interest groups composed of different shareholders of a company. By competing for voting rights of stocks, that is, voting rights, to gain control of the board of directors, thereby achieving the purpose of changing company managers or changing the company's strategic objectives, Disputing shareholders (often influential major shareholders) and the company's management or the actual controller of the company is a way to compete for control of the company.

Scramble for agency

Right!

The scramble for agency rights refers to different interest groups composed of different shareholders of a company. By competing for voting rights of stocks, that is, voting rights, to gain control of the board of directors, thereby achieving the purpose of changing company managers or changing the company's strategic objectives, Disputing shareholders (often influential major shareholders) and the company's management or the actual controller of the company is a way to compete for control of the company.

Chinese name

Scramble for agency

Object

A company

the way

Fighting for stock voting rights

Field

economic

First, the entrustment of shareholders' rights and interests is the basis of the scramble for agency rights. Shareholders' voting rights can be entrusted to other shareholders, which makes the competition for entrusted voting rights valuable, because controlling the entrusted voting rights can control the general meeting of shareholders, and then control the board of directors and control of the company. ^[1]

The reason for the scramble for agency rights is often that dissident shareholders are dissatisfied with the company's operating conditions or development strategy, and they do not have sufficient capital to acquire company control by merging the company's equity, so they choose to control the low-cost company that entrusts voting Power struggle. If dissident shareholders want to obtain the support of other shareholders, they must propose attractive strategic adjustment plans, including merger and reorganization plans, asset reorganization plans or main business development adjustment plans, showing that the new company management has the ability to pass the company's development The adjustment of the strategy will bring benefits to the company's operations and increase the income of the company's shareholders to obtain the entrusted voting rights of other shareholders. The public solicitation of the power of attorney voting by the small and medium shareholders of the company in the securities market is a sign that the competition for agency power has become heated. ^[1]

The scramble for agency power is an external control mechanism for shareholders to use the company's control market to supervise and restrain managers. The characteristics of the scramble for agency power are as follows: ^[2]

The difference between agency scramble and M & A

(1) Different effects on the distribution of company ownership ^[1]

In mergers and acquisitions, control is transferred to the hands of the acquirer. With the realization of the merger, the acquired company either loses ownership or changes in the distribution of ownership structure and controlling shareholder body; while the scramble for agency rights is different, the scramble for agency rights itself The purpose is not equity (although often accompanied by scramble for equity), but stock agency rights. In the process of competing for agency rights, most shareholders do not transfer their equity. Their motivation is more to choose more efficient management and development strategies to increase their stock value.

(2) The actual results of controlling power in the short term are often different

Corporate mergers and acquisitions are actions to gain control, but sometimes they do not work. This is because mergers and acquisitions need to gain control of the company through gaining board seats. However, directors have a term limit, and the Company Law and the Articles of Association have made special provisions for the protection of directors 'status. Directors must not resign without excuse during the term of the shareholders' general meeting. At the same time, as we discussed in Section III, the actions of many companies in order to resist mergers and acquisitions often restrict the voting rights system, the composition of the board of directors, and the re-election system, which makes the acquirer face The embarrassing situation of not being able to take control in the short term. In the scramble for agency power, the challenger may obtain the majority of directors' seats in the "referendum" of the general meeting of shareholders and directly obtain the actual control of the company. Compared with mergers and acquisitions, the scramble for agency rights makes it easier to obtain actual control in the short term. However, although the challenger can obtain the control of the company through the scramble for agency rights, the final decision on the control of the company is still the equity. If the challenger's future company strategy is unsuccessful, it is likely to lose the support of small and medium shareholders and thus have to leave. Although company mergers and acquisitions sometimes cannot grasp the operating rights in the short term (due to the implementation of various anti-acquisition strategies), they are positive in the long run.

(3) Different degrees of information disclosure

This is particularly prominent in China's securities market. In the process of company mergers and acquisitions, the method of equity secret agreement transfer is often adopted. Its typical performance is that a company's stock has inexplicably and continuously increased over a period of time, and the company either keeps silent or expresses that there is no such disclosure but no disclosure Information". When the stock price climbed to a higher value, the company released important information such as corporate restructuring. Notwithstanding the restrictions of relevant regulations, the disclosure of company management information in the tender offer of shares in the secondary market is also inadequate. It can be seen that the degree of information disclosure in mergers and acquisitions is relatively low. In the scramble for agency rights, in order to obtain the support of the majority of small and medium shareholders and ensure the success of the competition, the challenger must use more resources, grasp more information about the company, and disclose it to the majority of shareholders. Even if managers try to control the publication of their unfavorable information, at this time the challenger has a high degree of mastery of the information. In the process, the openness of company information will continue to increase.

(4) Different degrees of moral hazard

Compared with mergers and acquisitions, the moral hazard of the challenger in the scramble for agency rights is more prominent. After the challenger controlled the company at a low cost, the asymmetry of shareholder rights and responsibilities appeared. Because of the small amount of shares it holds, according to the company law, it only bears the limited liability corresponding to the amount of its capital contribution (the size of the shares it owns), and its withdrawal is relatively easy, but it has the right to operate the entire assets of the company, which is possible It will lead to the short-term behavior of the challenger's operation, which may make it induce the small and medium shareholders and deceive their support only for the purpose of plundering the resources of the listed company instead of long-term development.