Their tactics are meant to distract management, to cause angst among directors and officers and to weaken the relationship between the board and the company's senior officers. Tender offers are rare for a variety of reasons. In a tender offer, the activist shareholder tenders for a majority of the outstanding shares. Because most activists are not interested in buying the entire institution or a controlling interest, a tender offer is not the preferred tactical choice. Moreover, a tender offer may raise regulatory issues and its effectiveness would be blunted if the institution has adopted a poison pill plan.
Most activist shareholders resort to a proxy contest or at least the viable threat of one.
They count on the board's resolve collapsing when faced with the prospect that the activist shareholder will, indeed, earn admission to the boardroom. Once a proxy contest has been threatened or launched, management begins to wonder which shareholders the activist has spoken to and which have sided with the activist. Activist shareholders have the element of surprise to put out their side of the story first and to contact other shareholders to cause discord. While the proxy contest may be the core tactic, it is seldom utilized alone. Activist shareholders also may threaten to sue directors, issue negative press releases about directors and management, threaten to embarrass the board and management at the annual shareholders meeting or hire their own investment banker to generate third-party bids for the company.