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Champion of management defense embraces responsibility for long term value


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Source: New York Times DealBook, March 28, 2014 article and video

Hedge Funds | Tulane Business Forum

Legendary Deal Maker Criticizes Investors With Short-Term Interests

By MICHAEL J. DE LA MERCED  March 28, 2014, 12:18 pm


‘Poison Pill’ Inventor Targets Activism

March 28th, 2014

Activism in the long-term is bad for shareholders and for the economy as a whole, says Martin Lipton, a founder of Wachtell, Lipton, Rosen & Katz, at the Tulane Corporate Law Institute.

NEW ORLEANS — No discussion of shareholder activism can happen without invoking the name Martin Lipton. He’s the lawyer who has defended corporate America for decades.

Speaking at the Tulane Corporate Law Institute here on Friday, the legendary deal maker held fast to his belief that companies’ boards should be protected so they can look out for the long-term interests of shareholders.

For Mr. Lipton, who invented the poison pill defense against activists and hostile bidders as a founder of Wachtell, Lipton, Rosen & Katz, the duty of corporate directors is to transcend the short-term desires of investors.

“My view of corporate governance is that the board of directors should be responsive to the long-term interests of the shareholders of the company,” he told his interlocutor, Andrew Ross Sorkin of DealBook.

He recounted why he created the poison pill. Properly known as a shareholder rights plan, the maneuver triggers a flood of shares if an investor buys more than a certain amount of stock, diluting the aggressor’s holdings.

“The poison pill was developed because of my frustration with the inability of subjects of hostile takeovers to deal,” he said.

Still feisty at 82 years old, Mr. Lipton noted that hostile takeovers aren’t always in the best interests of the company being pursued. He pointed to the unsolicited bid by American Express for McGraw-Hill in 1979, worth nearly $2.6 billion in today’s dollars. Now, McGraw-Hill is worth roughly $24 billion, counting the education division that it has sold off.

Mr. Sorkin pressed the lawyer on the rise of “shareholder democracy” in the United States, as boards have become more responsive to their investors over time. That’s not necessarily because of activist investors, but Mr. Lipton still identified that as a problem, with investment managers, in general, looking at too short a time frame for their investments.

But he praised people like Laurence D. Fink of BlackRock, who called on companies to reinvest and not merely take on debt to buy back stock — a phenomenon that Mr. Lipton attributed to short-termism.

That said, the deal maker isn’t completely opposed to activists. When asked by Mr. Sorkin whom he liked, Mr. Lipton first said that he respected, and perhaps sometimes even liked, the following activists:

• Ralph V. Whitworth and David Batchelder of Relational Investors

• Nelson Peltz and Peter May of Trian Partners

• Barry Rosenstein of Jana Partners

He was much more direct about some of the others.

“I don’t like Carl Icahn,” he said. “I don’t like Paul Singer at Elliott; I don’t like Dan Loeb at Third Point; and I don’t like Bill Ackman.”

Why? For Mr. Lipton, those hedge fund managers are out to make a profit for themselves, and sometimes other investors, but potentially at the expense of a company’s long-term interests.

Despite the early hour — 8 a.m., after what was, for many, a long New Orleans night — many merger advisers still packed a conference room to hear Mr. Lipton speak. Even Leo E. Strine Jr., Delaware’s newly minted chief justice and a sometime sparring partner, made a surprise roast-as-introduction for Mr. Lipton.

“Part of the reason why so many of us have so much respect for him is his belief that the capitalist system should work for all,” Justice Strine said.

He then presented Mr. Lipton with an honorary Delawarian award, jokingly adding, “The best thing is, you get all the benefits of being a Delawarian without living there.”

Copyright 2014 The New York Times Company



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