In a large publicly held corporation» most shareholders are passive and they vote by proxy. This creates huge opportunities for management overreaching. If management were able to get shareholders to hand over open-ended proxies without informing them of what their shares would be voted on, there will be no limit to the power of management, and shareholder control will be an empty word.

To protect shareholders from potential abuses, the SEC has made a few rules to regulate proxy solicitation. The proxy must permit the shareholder to vote on specific matters clearly identified in the proxy and vote for some, all or none of the nominees for directorships. Proxy solicitations must be preceded or accompanied by specified information in a "proxy statement". No open-ended proxies are permitted. And shareholders have a private cause of action for violation of the SEC proxy rules.

SEC rules also give shareholders access to the proxy process. A shareholder who wants to challenge management for control of the corporation is thus enabled to mail his proxy statement to other shareholders, in which he tries to convince them that they will be better off under new management. Proxy fights are an effective method by which the insurgent shareholder challenges incumbent management for control of the corporation.

Control of a corporation can also be bought. One way to do this is to buy a control block at the open market.3 But this is difficult because rarely will enough shareholders be willing to sell at market. A tender offer solves the problem. It reduces the risk and makes acquisition of control quicker.

A tender offer is like the retailer’s "weekend clearance sale at never-again price". A typical tender offer proceeds in two stages. First» the prospective offeror purchases a "stake" in the target through ordinary open market purchases. This "block purchase" reduces the average cost of the bidder’s purchases, provides a hedge against the risk of a competing offer (since any such offer will increase the market value o{ the stock)4) permits easier access to shareholder list and other corporate information, and serves to deter competing offers. In the second stage, the tender offeror places an advertisement in the financial press by which it offers to purchase a stated number of tendered shares at an above-market price within a certain time. In order to encourage a quick, favorable reaction to the offer $ the bidder usually offers a purchase price substantially above the market price.

Federal tender offer regulation seeks to ensure that shareholders have sufficient information about the offer and adequate time to evaluate the offer, so they are not unfairly pressured into tendering their shares. It provides that any tender offer for a public corporation’s securities that brings the bidder’s holdings to more than 5 percent be subject to both disclosure requirements and substantive rules governing the terms of the offer.6 In effect，this covers all public tender offers.

Answer the following questions:
1. Who controls the corporation?
2. Explain proxy solicitation and its importance in the management of the corporation.
3. What are the possible abuses of proxy solicitation? What will be the consequence of these abuses?
4. How does the SEC regulate proxy solicitation?
5. What is a proxy fight? What must the insurgent do in a proxy fight? Does the insurgent have a good chance of winning the fight?
6. What are the ways to buy control?
7. Why does a tender offer have a better chance to succeed than buying a control block at the market?
8. What does the bidder usually do before he makes the tender offer?
9. What is the second step the bidder must take?
10. What is the purpose of the federal rules regulating tender offers?
11. What is required of tender offers for a publicly held corporation’s securities? What is regulated?
12. What happens to an unsuccessful bidder in a tender offer? Will he lose a lot of money?