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The underreported cost of proxy battles

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Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Even when a company wins a proxy battle against activist shareholders, it often still endures significant losses. The American Banker reported Tuesday that costs associated with proxy battles are on the rise. Proxy fights can cost companies well over $100,000, with SEC filing fees alone costing up to $25,000. Comparatively, activist investors often spend anywhere from $100,000 to upwards of a million dollars in their efforts to successfully wage a proxy battle against a company.

Two of the three banks involved in recent proxy battles have disclosed some of their costs. Harvard Illinois Bancorp said it paid $100,000 in the first quarter alone to successfully fight off Stilwell Group. And Cardinal Bankshares reported that its legal fees doubled in the first quarter from a year earlier, to nearly $100,000 ... These expenses are expected to increase in the second quarter as the banking companies stepped up efforts leading to their annual meetings.

Furthermore, it should be noted, monetary costs are not the only harm companies suffer from contentious proxy battles.

There are other intangible costs that can be far more damaging to a bank. Observers say a dug-in battle creates more uncertainty, making it hard for a bank to plan and implement a growth strategy. 'The main costs is not the dollars and cents; it's the time, the distraction, the tension and all the mental fatigue factor that's the cost,' Weismann [a partner at Luse Gorman Pomerenk & Schick] says.

Thus, on account of the substantial monetary and opportunity costs involved, even companies that successfully defend themselves against activist proxy efforts can potentially suffer significant losses in the end.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


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The Manhattan Insitute's Center for Legal Policy.