Bloomberg Law
Feb. 24, 2023, 10:00 AM

ANALYSIS: Investors Will Slow Transactions in 2023 Proxy Season

Abigail Gampher
Abigail Gampher
Legal Analyst

At least 10 management proposals for mergers have been included in definitive proxy statements so far this year, according to Bloomberg data. And more are likely on the way with the 2023 proxy season quickly approaching.

But the number and nature of last year’s complaints on governance-related topics indicate that shareholders may not feel equipped to vote on transactions in 2023.

Complaints from past years covering misleading or false proxy statements related to transactions—which accounted for over half of the more than 900 governance-related complaints generally in 2022—may show what the major factors are that will sway shareholders to vote for or against a merger.

A keyword docket search of these proxy statement-related complaints revealed that 278 of them mentioned that basic transaction details—such as the transaction date or value—caused the proxy statements to allegedly violate SEC Rule 14a-9 governing proxy solicitations. Conflicts of interest was the runner-up category with 269 mentions that the targeted company allegedly failed to fully address conflicts related to the transaction.

One hundred and eighty-nine complaints alleged that financial analyses—or their omission—in proxy statements caused the statements to violate SEC Rule 14a-9. A small number of complaints (40) mentioned risk assessments in their challenge to misleading or false proxy statements.

Going into the 2023 proxy season, companies proposing a merger or an acquisition should clearly explain the financial projections post-transaction, conflict of interest assessments conducted, and transaction details, so that shareholders can gauge how to cast their votes.

However, the absence of litigation over a company’s proxy statement doesn’t stop investors from leveraging other tools to challenge company transactions. In 2022, 52 investor activist objectives opposed mergers; 15 opposed acquisitions; and 16 opposed other transactions, according to Bloomberg data. While not all these objectives succeeded, like litigation, they slowed down transactions, and several remain pending.

Similar to previous proxy seasons, we may well see investors use litigation over proxy statements and activist engagement as tools to achieve their objectives this season, which could delay transactions.

Bloomberg Law subscribers can find related content on our ESG Practice page, Practical Guidance: Proxy Regulation page as well as our Practical Guidance: ESG Risk Management page. Data accessible at BI ACT <GO> and BI PROXY <GO>.

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