Market Watch : Hired Guns Used in High-Stakes Proxy Battles : Corporations: As the fights become more common than tender offers, thousands of dollars are being spent on organized campaigns to win the hearts, minds and voting rights of shareholders.

NEW YORK —  The Lockheed Corp. shareholders who gathered in an airplane hangar in Burbank last week to decide one of the hardest-fought proxy wars in recent history didn’t enter the fray unarmed.

In the week before the company’s annual shareholders meeting, they had been bombarded with propaganda from Lockheed’s board of directors and Harold C. Simmons, the Texas investor who is out to replace the company’s board of directors with his own slate of candidates. Full-page newspaper ads, television commercials, letters, telephone calls and even personal appearances by Simmons and Lockheed Chairman Daniel M. Tellep all aimed at persuading shareholders how to vote.

“It’s almost like a political exercise in which both sides are obliged to answer two questions: What’s wrong with the other guy and what’s right with us?” said John C. Wilcox, managing director of Georgeson & Co. in New York. “You will find in proxy fights, people are (better) at answering the first question.”

Wilcox should know. His company was one of two firms that placed those newspaper ads and twisted the arms of thousands of Lockheed shareholders. Wilcox is a proxy solicitor, one of the people who work the trenches at annual meetings. If matters are routine, proxy solicitors may simply distribute and collect proxy statements.

But when blood turns bad between management and shareholders, or when someone launches a takeover, each side often hires a proxy solicitor as its advance man. In this case, Georgeson represented Lockheed management, for which Georgeson will be paid between $500,000 and $750,000, Wilcox said. Simmons, a major Lockheed stockholder and head of Houston-based NL Industries, was represented by D. F. King & Co.

“The way I see these proxy solicitors, they’re like bird dogs,” said Ralph V. Whitworth, director of the United Shareholders Assn. in Washington. “They basically hunt with anyone’s who’s got a gun.”

Despite the economy’s overall anemic performance--indeed, in part because of it--the proxy solicitation business has never been better, at least for Georgeson and King. “This year is going to be probably the biggest year of proxy fights since I’ve been in this business, and that’s almost 17 years,” Wilcox said.

Ken J. Donenfeld, executive vice president for King, said his company is working on 15 proxy fights this year, more than the total number it did in all of 1989. Georgeson was involved in 14 proxy battles last year. So far this year it has represented 10 clients and, “we’re getting new ones by the day,” said C. Brian Maddox, a Georgeson spokesman.

The collapse of the junk bond market has reduced the supply of cash needed to take over corporations outright. So investors are turning more often to proxy fights to remove corporate management and policies they believe hinder performance.

“Tender offers are almost impossible to do today,” said Dennis J. Block, an attorney who often works with proxy solicitors. “Unless you’ve got a lot of cash, you can’t make a tender offer.”

But solicitors are also profiting from the rapid growth of institutional shareholders--pension funds, mutual funds, insurance companies. Institutions held 29% of all U.S. stocks in 1980. In 1989, the number had grown to 43%, according to the Securities Industry Assn.

By controlling increasingly large blocks of securities, these investors can wield enormous clout with management.

“Suddenly, institutional owners realized how powerful they were,” said Arthur S. Ross, president of the Carter Organization, which, along with King and Georgeson, is one of the three largest proxy solicitors. So institutional investors are hiring proxy solicitors to represent their demands on a wide range of corporate policy: confidential voting for shareholders or elimination of anti-takeover measures such as “poison pills.” Other efforts include getting shareholder approval for costly executive severance packages known as golden parachutes and opting out of Delaware’s anti-takeover statute.

“One of the things that will make business good in the 1990s for proxy solicitors is the advent of shareholder rights fights,” said one proxy solicitor. “Shareholder rights fights tend to prolong battles for control.”

Proxy solicitors have already been hired for several high-stakes battles this spring: Carl C. Icahn has retained D. F. King in his bid to sell most of USX Corp.’s steel holdings; King is also representing National Intergroup Inc. against Centaur Partners Group, which has hired Georgeson in its campaign to place its own candidates on an expanded board of directors.

Proxy solicitors were also involved in the recent settlement between Avon Products Inc. and dissident shareholder Chartwell Associates L.P. and Georgia-Pacific Corp.’s takeover in February of Great Northern Nakoosa Corp. And they played key roles in a successful attempt by dissident shareholders to topple Xtra Corp.’s board of directors last month.

In Lockheed’s case, Simmons’ basic message has been that he and his candidates could do a better job of running the Calabasas-based company by focusing on its “core” business with the National Aeronautics and Space Administration and the Department of Defense. A Lockheed restructuring plan announced a year ago called for the company to beef up its commercial operations in order to wean itself from military contracts.

But the solicitation business is not without its setbacks. Last month, Donald C. Carter, founder of the Carter Organization, pleaded guilty to overcharging customers $1 million and evading and falsifying state income taxes.

Carter’s confession, coupled with three key proxy battle defeats in 1988--including Burt Sugarman’s failed takeover of Media General--have badly damaged the company’s reputation, several industry sources said.

But Ross noted that the company has signed up three new clients since Carter’s confession. The company has 176 active clients.

Although riding herd on proxy fights will continue to make up a large part of the business, solicitors say they are venturing into a new area: debt solicitation.

A growing number of companies that overborrowed during the junk bond heyday are now having to restructure their debts or declare bankruptcy. So proxy solicitors figure these companies--some of which used solicitors to make the leveraged deals that got them into trouble--will need them again to persuade debt holders to go along with the restructurings.

“As long as shareholders and debt holders raise issues that they’re unhappy with,” said Dennis Mensch, executive vice president for Carter, “then there will be a continued need for someone to deal with those constituencies.”