Martin Lipton, founder of the venerable law firm Wachtell, Lipton, Rosen & Katz slammed hedge funds at a recent New York Bar Association conference. In his keynote address, Lipton accused activist hedge funds as being motivated by short-term gains instead of long-term value. Ironic, since Lipton is credited with the creation of the poison pill -- a strategy used by corporations to prevent takeovers, even takeovers that offer premiums to shareholders.
Hedge funds need to plow through this reactionary bluster and step up their activist strategies, not curtail them. In the new financial world order (see previous post), activists and short sellers are an important part of the marketplace of ideas that enforces good corporate governance and compels CEOs to explore all alternatives to create value for shareholders -- even at the expense of their own jobs.
Poison pills and break-up fees are nothing more than anti-shareholder defense mechanisms designed to preserve the status quo and the lucrative relationships law firms maintain with corporations.
Clearly Wachtell, Lipton, Rosen & Katz is part of the problem, not the solution, and hedge funds need to identify the forward looking law firms, PR firms and other service providers to help them with constructive activism.