Martin Lipton is perhaps best known for inventing the shareholders’ rights plan, also known as a poison pill. Many companies adopt such a plan to defend against the likes of activists like Carl Icahn or Bill Ackman. Lipton spoke at the Tulane Corporate Law Institute on Friday, reports DealBook, and in addition to naming the names of activists he likes and doesn’t like, he also explained again how it is the fiduciary duty of board members to look behind investors’ short term wants.
Why Lipton created the poison pill
The lawyer said he designed the poison bill because he was frustrated with how companies which were targeted in hostile takeovers were unable to make a deal. He said hostile takeovers are not always in the company’s best interest. Specifically, he spoke of McGraw Hill Financial Inc (NYSE:MHFI)’s unsolicited bid for American Express Company (NYSE:AXP). The company made the bid in 1979.
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When asked about rising shareholder democracy, Lipton said it is becoming a problem because investment managers tend to look at their investments in too short of an amount of time. The result is sometimes something which isn’t in the long-term interest of the company, particularly if a company bows to a push from an activist investor.
Lipton on Icahn, Loeb, Ackman
The attorney directly named some activist investors that he really doesn’t like. He named Carl Icahn, Elliott’s Paul Singer, Third Point’s Dan Loeb and Pershing Square’s Bill Ackman. When asked why he doesn’t like them, he said the issue is that they are mainly interested in turning a profit for themselves and sometimes others.
However, he said often this comes at the expense of the company’s long-term interests because they are so focused on the short term.
Lipton likes some activists
Lipton didn’t say he disliked all activist investors, however. He said he “respected, and perhaps sometimes even liked” some of them. He especially had praise for BlackRock, Inc. (NYSE:BLK)’s Laurence Fink. The investor is known for asking companies to reinvest rather than just taking on debt so that they could buy back shares.
It wasn’t too long ago that Carl Icahn was pushing Apple Inc. (NASDAQ:AAPL) to take on debt to massively increase its share buyback plan. According to Lipton, this sort of practice is because of investors looking at too short of a term.
The attorney also spoke well of David Batchelder and Ralph Whitworth of Relational Investors and Trian Partners’ Nelson Peltz and Peter May. He also mentioned Jana Partners’ Barry Rosenstein in a positive light.