The corporate proxy fight may return to vogue because it is becoming increasing difficult to take over a company through a hostile tender offer.
That at least is the view of New York securities lawyer Martin Lipton, a partner in Wachtel Lipton, Rosen & Katz. Lipton - along with arch rival Joseph Flom of Skadden Arps, Slate, Meagher & Flom - is considered one of the leading legal experts on takeovers and is usually to be found representing one side or the other in major tender battles.
Lipton believes the effectiveness of the tender offer as an acquistion device has been largely undermined by state statutes against quickie takeovers, the ablility of investment banking firms to find a "White Knight" or friendlier alternative bidder for a company that is being attacked, and also by moves on the part of the Securities and Exchange Commission to foreclosure anything but a straightforward - and usually unsuccessful - tender.
"Tender offers are becoming more and more difficult," said Lipton. "In the last three years there have been very, very few instances where the original bidder in a tender was successful in aquiring the target company at the price orginally put forward.
"There have been a few cases where the original bidder continued in an auction and finally won out and made the acquisition at a higher pice," he added. "But in most the major tender offers, the target company is acquired not by the original bidder but rather by a white knight.'"
Because of these developments, Lipton said that in his view "we'll see more and more instances of companies, raiders, acquiring anywhere from 5 to 20 percent of a target company and then conducting a proxy fight to take control.
"I don't expect to see 50 a year, but I do expect to see a half dozen a year," said Lipton, "either when a raider goes in and acquires a atake and attempts to take control in a proxy fight, or when there are shareholders who are disappointed."
The proxy battle for control was a popular device in the 1950s when the likes of Louis Wolfson and Leopold Siberstein fought eye-gouging, expensive, and often unsuccessful battles to acquire companies by throwing out existing management. In recent years this kind of proxy fight has gone out of style.
But earlier this week Curtiss-Wright Corp., a New Jersey aircrafts Part manufacturer, shocked Wall Street when it annouced it had bought nearly 10 percent of the shares of Kennecott Copper Corp., a company many times its size. Curtiss-Wright said it was mulling the possiblity of a proxy battle to change Kennecotts directors, oust present management and liquidate parts of the company for the benefit of shareholders. Yesterday Curtiss-Wright was still undecided about its next move, and Kennecott was waiting for the shoe to drop.
There also are reports circulating that disgruntled shareholders in Marshall Field & Co! are considering a proxy challenge to management because of its actions to thwart a tender bid by Carter Hawley Hale Stores Inc.
After Carter Hawley withdrew its $36 a share offer - following an anti-trust suit filed by Marshall Field and its plans to expand into Carter Hawley's territory - Marshall Field shares dropped more than $8 in one day to $19.88. They currently are trading
Lipton conceded that "proxy fights have never been terribly successful. They are very expensive, and there is a great reluctance on the part of shareholders to vote against management."
But there are circumstances in which they stand a better chance of succeeding, he noted. These include the aftermath of unsuccessful tender bids when many shares have moved out of the hands of regular shareholders and into the clutches of arbitrageurs who gather in the shares in anticipation of the deal going through.
Another situation is the so-called "bear hug," or take-it-or-leave it approach a company in lieu of an actual tender. The purpose of the "bear hug" is to avoid getting entangles in a bidding battle. If such an approach to buy shares at a premium to the market price is rejected by management, a proxy battle could ensue.
"The dynamics of a proxy fight are different after an unsuccessful tender or a rejected bear hug. With frequently 50 percent of the stock in the hands of arbitraguers, the proxy fight could be successful under those conditions," he noted.
At the same time, the SEC has been contemplating a number of major changes in proxy rules which could facilitate proxy fights. These include proposals to beef up the ablility of shareholders to go around management and put motions directly to other shareholders on proxy statements, and to allow shareholders to nominate their own candidates for directors that the company would have to include in a proxy statement and submit to a shareholder vote.
"I don't think companies are suddenly going to stop being acquisitive," Lipton said, and with the SEC making it impossible to do tender in any but the most expensive way, there willbe a need to find either a new method of acquisition or to revive some of the old methods."