As the summer months approach, the M&A market has been greeted with an unpredictable proxy season. There have been threats, meetings of the mind and the traditional back-and-forth politicking normally reserved for Beltway wonks. If anything emerges out of the babel, it's that dealmaking, whether it occurs or not, will remain front and center even amid uncertainty over the economy and credit markets.

"It's never been busier in terms of shareholder activism," Bruce Goldfarb, head of new proxy solicitation firm Okapi Partners, tells Mergers & Acquisitions.

Much of the attention in early May had been directed at Yahoo, and whether or not hostile suitor Microsoft would launch a proxy contest to perhaps force a sale of the Web giant. (Microsoft, instead opted to drop the bid as of press time). But other battles were waged, demonstrating an increasing willingness to fight it out for board seats.

Sun Capital, for instance, this spring regularly sent open letters to Furniture Brands' shareholders urging them to vote its three-man slate onto the board, while hedge fund Water Asset Management, with its sights set on Instituform Technologies, proposed a five-man slate, which included former Senator Alfonse D'Amato. Charming Shoppes, Circuit City, Vaalco Energy, MMC Energy, Point Blank Solutions and SM&A, among others, were also engaged in proxy fights of their own.

To be sure, just a portion of the proxy contests are premised on the pursuit of a hostile sale or designed to trigger asset dumps. In fact, in the case of MMC, the dissident shareholders argued against such a move, while Steven Myers, who had founded SM&A, was simply seeking to improve governance at his former company. In the proxy contests that were designed to impel a sale, however, there is no guarantee that winning seats on the board will necessarily trigger such a move.

"It can be a precursor to M&A only if it's done effectively," according Goldfarb. "Timing becomes an issue and can absolutely affect any potential deal."

More importantly, however, is how much power dissidents wield when and if they actually win seats. Goldfarb adds that it becomes more difficult to create change when dissidents only seek a minority representation on the board. Even if they win, he says, "Their stated purpose can be frustrated by a lack of any additional support."

But that's not going to keep dissidents from trying. Julien Balkany, one of the nominees selected by Nanes Delorme Partners to serve on Vaalco's board, notes that if they're successful in gaining seats it would represent a larger "mandate for change."

"It's obvious that we intend to work with the other board members, but we realize that we can't create value unless our ideas are actually turned into action," he says. "Being on the board is the best way right now to bring about positive change."

In addition to strategic alternatives, Nanes Delorme Partners is calling for the elimination of Vaalco's anti-takeover provisions, the discontinuation of expansion efforts in the North Sea, the separation of the CEO and chairman roles, and the declassification of the staggered board.

Steven Myers, meanwhile, notes that proxy contests don't have to be contentious and that when dissident shareholders do gain seats, it doesn't necessarily make for awkward board meetings. Myers notes: "Currently, the board consists of nine people, seven of whom are independent directors. I have to assume they're not stooges for management and they will think on their own."

Either way, he adds, "It's not as if our slate will sit on one side of the table with incumbents lined up on the other side."

Myers, who is gunning for minority representation on SM&A's board, is attempting to address financial oversight, accounting methodology and fiscal strategy through the proxy fight.

Of course, some proxy contests have been known to devolve into outright acrimony. In one extreme case, Jonathan Iseson's hedge fund Blue Water Partners reportedly hired armed guards to seize the offices of Netsol International, emboldened by claims that he won a proxy fight for a new board and new executives. Later that year, in 2001, a Nevada district court reinstated the original board and dismissed a court-appointed receiver.

Goldfarb notes that the best result often comes when the two sides can avoid over-the-top scraps. "I have seen situations that have soured to the point where there's nothing effective that can come out of it," he says.

On the other hand, Goldfarb cites that it's often the case that companies, when faced with dissident shareholders, will attempt to negotiate a compromise that can help them avoid the distraction and costs associated with a proxy fight.

Bassett Furniture Industries went this route in April when it negotiated with Costa Brava Partnership to allow a shareholder representative to attend board meetings for a set period of time. Bassett, in turn, ceased litigation, while Costa Brava withdrew its nominees and pledged to support the proposed Bassett slate.

Meanwhile, just as a dissident slate doesn't automatically translate into a new course of action for a particular business, if the company successfully thwarts the proxy fight, it doesn't mean that the activists will just disappear.

Carl Icahn's work with Motorola might reflect the endurance some activists are demonstrating today. After losing a proxy battle to gain seats on Motorola's board last year, the company finally relented this past April, granting him two seats, as opposed to the four he was seeking. Motorola also gave him oversight of the company's cell-phone business, which is being spun off.

"We're not going to go away, elected or not," Balkany insists, describing his intentions with Vaalco. "If we are elected to the board, we'll be able to help influence the company as an insider, but if we're not elected, we'll have more flexibility to work from the outside and continue to pressure the remaining directors and management."