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Twitter’s Poison Pill Began With Marty Lipton’s Valuable Memo

April 21, 2022, 9:30 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we try to measure the value of a single legal memo. Sign up to receive this column in your inbox on Thursday mornings.

It’s rare that a 90-year-old corporate lawyer captures the attention of Twitter users, but Marty Lipton did this week.

He’s a founding partner of the most profitable major law firm today—Wachtell, Lipton, Rosen & Katz. His career is so remarkable there is an archive of his work.

And within that Lipton Archive is one of the most valuable legal documents a lawyer in private practice ever wrote. The memo, distributed to clients on June 20, 1983, spells out the “poison pill” defense to a hostile corporate takeover.

Twitter on April 15 employed the maneuver to try to fend off Elon Musk’s effort to purchase the company. Google searches for “poison pill” and “Marty Lipton” skyrocketed after the move.

Twitter users were also buzzing. One who describes himself as “some rando in San Antonio” called Lipton “our hero.” He was responding to a user whose photo is a Bored Ape NFT that said he’d just learned of poison pills and declared them “not a good look.”

Another of the platform users wrote, “Where is Marty Lipton when we need him?”

If you don’t know what a poison pill is, here’s a detailed explainer. In short, the provision makes it difficult for someone to buy a company by multiplying everybody else’s shares—at no real cost to them. The “free” shares are triggered when someone acquires a big enough stake in the company. They effectively make the acquisition cost prohibitive.

And they’ve created tremendous value for Wachtell and other lawyers through their staggering use over the last 40 years.

Lipton has said Wachtell employed the measure six times in 1983 alone—before any court ever said it was legal.

As of 2001, more than 2,200 companies had one in place, Reuters reported. And at least 70 were ginned up in 2020 alone, according to Morrison & Foerster.

Julian Velasco, an associate professor at Notre Dame’s law school, isn’t a fan of poison pills. But he calls it the second biggest “idea” in mergers and acquisitions history. (He said the first is a triangular merger, which involves an acquirer, its subsidiary and a target. He couldn’t attribute that idea to a single inventor.)

John Coffee, Adolf A. Berle Professor of Law at Columbia Law School, called the poison pill “a very smart idea that has dominated other takeover defenses.”

“I would not challenge your conclusion that it was one of the most valuable tactics that a lawyer came up with in corporate practice,” Coffee said.

The professors took some issue with the idea that the original memo is as valuable as I’m portraying it. They note the poison pill became more effective through iterations Lipton spelled out later.

Still, the other memos wouldn’t exist without the original. I consider the original memo the legal equivalent of a Michael Jordan rookie card. It memorializes something that ushered in a new way to play the game.

And that got me thinking: What are some other ways to quantify the value of a legal document? There is some value, for instance, in writing a complaint that leads to a huge settlement or verdict.

There is also value in writing other types of legal documents for clients. For instance, there was the letter lawyers wrote for Musk declaring his ownership stake in Twitter. The company’s shares jumped as much as 27% after the letter was filed.

Corporate legal documents can also create second-order value for society, businesses, or people. A poison pill might help a company defeat a takeover bid and go on to return greater value to shareholders—or force a buyer to pay a higher price.

I asked Lipton to weigh in on the broader value poison pills have created—beyond the revenue generated for lawyers. He didn’t respond.

But his archive holds an answer. He has said that he views poison pills as part of a “personal belief system” about why corporations exist and how they create value.

He came about this belief system nearly 40 years ago, when the starting salary for first-year lawyers was $22,500, according to a New York Magazine article written by Steven Brill, who’d go on to launch The American Lawyer. (It’s now $215,000.)

One matter that particularly resonated with Lipton was American Express’s 1978 attempt to acquire McGraw-Hill. Lipton considered not taking the job for the publishing company. His firm’s lawyers were “exhausted,” and he’d scheduled two weeks off for everyone at the firm, according to his archive.

But he took the work, even if his tactics in those pre-poison pill days were limited. He used the media to portray the move as bad for McGraw-Hill’s employees and customers. He filed regulatory complaints, and a lawsuit, to stop the deal.

It was one of Lipton’s rare early successes. It also changed his views on takeovers.

He became convinced that corporations don’t exist simply to deliver short-term profit to shareholders. They exist to protect employees and preserve quality, among other longer-term goals.

Lipton took the view that not allowing directors to respond to takeover attempts was bad for individual companies, while also harming the entire economy.

“The overall health of the economy should not in the slightest degree be made subservient to the interests of certain shareholders in realizing a profit on a takeover,” Lipton wrote in a seminal article, published in 1979.

Musk, Carl Icahn and other believers in corporate takeovers would disagree with Lipton.

But for those who side with him—those that view him as their Twitter “hero”—his memo is invaluable.

Worth Your Time

On Supreme Court Practice: Big Law firms are giving younger lawyers the prestigious job of arguing before the U.S. Supreme Court, Kimberly Strawbridge Robinson reports. It’s a shift from the “superstar” model where one firm’s highest profile attorney handles all the cases in front of the justices, she writes.

On Going Back to The Office: Cooley will allow many of its lawyers and staff to decide whether to come into the office when they officially reopen in June, Meghan Tribe reports. The firm is welcoming “different perspectives, desires and unique life circumstances” that will impact how much time is spent in the office.

On Paul Weiss I: Mark Pomerantz, who left the Manhattan District Attorney’s office after a disagreement over whether to prosecute former President Donald Trump, has rejoined his old firm, Paul Weiss Rifkind Wharton & Garrison, Tribe reports.

On Paul Weiss II: Pomerantz’s colleague, former U.S. Attorney General Loretta Lynch, was hired to conduct an independent racial equity audit for Amazon.com Inc., Saijel Kishan reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com

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