In recent proxy seasons we have noticed an increase in the frequency of “second bite” proxy contests. These situations can take various forms, including (i) a second proxy contest by an activist that reached a settlement with the company in a prior year (see, e.g., the contest launched in 2013 by Starboard to obtain additional seats on the board of Wausau Paper Corp.), (ii) an additional proxy contest launched by a shareholder that had previously unsuccessfully tried to appoint nominees to the board (see, e.g., GAMCO’s 2013 settlement with Myers Industries which followed four consecutive unsuccessful proxy contests), or (iii) a contest launched by a shareholder after the company has reached a settlement with another activist (see, e.g., Emulex’s potential proxy contest with Starboard following Emulex’s settlement with Elliott Associates). While it is impossible to provide recommendations of general applicability since any strategic advice in the context of a proxy fight needs to be customized to the specific circumstances of the case, we have included below some considerations that might provide some preliminary guidance to companies to reduce the likelihood of a “second bite” situation.

The Settlement Decision -

While there are several reasons why a company may want to settle a proxy contest (e.g., to eliminate distraction for the management team, minimize public criticism, avoid costs and mitigate the effects of a likely defeat), companies should also consider whether a settlement will likely be perceived as a defeat on the part of the company, whether it will boost the activist’s reputation vis-à-vis other shareholders, and whether it will encourage other activist shareholders to target the company.