Publications

Reimbursement of Proxy Contest Expenses for Incumbents and Insurgents

Fall 2006
Marc Weingarten
Activist Investing Developments - Fall 2006

Proxy contests represent one of the most powerful tools available to activist investors seeking to influence policy at the companies in which they own stock. One of the principal impediments to utilizing this tool is its cost. The insurgent is spending its own money to wage a proxy contest, while incumbents get to employ the corporate treasury, in effect financing the fight with the shareholders’ own money — including the insurgent’s to the extent of its ownership. Proxy contest costs range from $100,000 at the lower end to tens of millions of dollars at the high end, particularly if litigation is involved. As an example, in the Six Flags proxy contest, Red Zone LLC, which successfully placed a minority of new directors on the Six Flags board, incurred approximately $10.4 million in expenses. The board found that amount reasonable, and the Six Flags stockholders approved the reimbursement at the 2006 annual meeting.