To win over proxy wars (in the case of takeover bids), where the corporate board or equity holders meetings are exposed to proxy wars, the directors have to adopt strategies based on the steps given below:
- Collection of material information
- Construction of proxy fight team
- Mass contact with shareholders
Board of Directors of a company while facing a takeover bid have to work hard to defeat such a bid. Therefore they should collect all possible information about the affairs of their own company, competitors, the takeover – bidder and the opponents. Particularly the management of a company with small holdings on their board face stiff problem. In that case the only remedy is to allow board members to increase shareholdings. To face the opponents, the board must use all the material information available for their defense.
The proxy fight team includes experts and persons of experience to help the management in proxy wars. The team could include : (1) Public relations men for media coverage and effective communication with the equity holders, (2) Proxy lawyers to advise management on corporate laws and other delicate issues involving legal expertise (3) Investigators who can collect every possible information about the opponents, takeover bidders (4) Analysts who can analyse the information for the benefit of the company (5) Management spearheading the proxy war. All these persons shall constitute the defence team in proxy battle and do ground work activities in close coordination with each other.
For mass contact with shareholders, it is necessary to collect list of shareholders. Sort out the list area-wise and also by voting structure of individual shareholders, so that each individual shareholder could be contacted and convinced.
Based on the above steps the management should prepare strategy involving close communication with shareholders bringing to their notice complete facts and solicit their vote through proxy.
It may be remembered that communications addressed to the shareholders should not give only one side picture about the failures of the management or the weakness of the company making takeover bid but should also give own plans and programmes to win over their faith in the management under threat of dislodgment. Therefore, the following facts should be carefully considered.
(1) Expose the weakness of the present management of the company which had failed to use the hidden potential of the company. Here, locate the hidden earning potential of the company.
(2) Known the intrinsic position of the management and the operation of the company through workers, trade unions and dealers as the published material may not reveal the problems being faced by the company and the conditions and circumstances in which it is placed.
(3) Analyse the published information of the company and penetrate into weakness as displayed through intensive analysis on following counts:
- Unused cash – Locate the quantum of unused cash locked up in short term securities. This will enable liquidity so that inability of management to utilize profitable opportunities rendering the company into low earning grade, because of inefficiency and poor management of assets is reduced.
- Accounts receivables – Determine the average age of period of receivables, longer the period of receivables the greater inefficiency of the management in collecting debts. Compare the finding with the industry standard and other competitive firms in the industry.
- Deaths leverage – Find out company’s debt bearing capacity and the exact use of gearing done by it as could be a reason for failure to raise funds should be located which should show the credibility of the management. A less geared company is easy prey for a corporate raider than a highly leveraged company. As reflected in the inefficiency management in utilizing the company’s resources to the advantage of shareholders as such company can service the shareholders in a comparably better manner.
- Assets profile – A company with larger quantities of fixed assets has greater potential of earnings. It can have funds released through sale or sale and lease back of spare assets and deploying such funds for working capital requirements to generate additional earnings. Such company is attractive to corporate raiders for takeover bids. Arguments on management inefficiency could very well be advanced if the company with larger assets profile has unmatched lower earnings.
- Ratio analysis – Ratio analysis in other different areas will release information which could be used in both ways to defend against a takeover bid by corporate raider as also the corporate raider can use the information against the management of the company to convince the share-holders and motivate them to support by passing on the controlling interest to them in the company.