Twitter’s Poison Pill Started With A Lawyer’s Most Valuable Memo

Welcome to the Big Law Business Section on the evolution of the legal market written by me, Roy Strom. Today, we try to measure the value of a simple legal note. Register to get this column delivered to your inbox on Thursday mornings.

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

He is a founding partner of the most profitable large law firm today—Wachtell, Lipton, Rosen & Katz. His career is so notable that there are records of his work.

And inside of it Lipton Archive is one of the most valuable legal documents ever written by a lawyer in private practice. The memodistributed to clients on June 20, 1983, sets forth the “poison pill” defense against a hostile corporate takeover.

On April 15, Twitter used the maneuver to try to push back Elon Musk effort to buy the company. Google searches for “poison pill” and “Marty Lipton” skyrocketed after the move.

Twitter users were also buzzing. The self-described “hike in San Antonio ‘called Lipton’our hero.” He was responding to a user whose photo is a Bored Monkey NFT who said he had just learned about the poison pills and declared them “not a good look.”

Another user of the platform wrote: “Where is Marty Lipton when we need him?

If you don’t know what a poison pill is, here is a detailed explanation. In short, the provision makes it difficult for someone to buy a business by multiplying everyone’s stock, at no real cost to them. “Free” shares are triggered when someone acquires a large 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 past 40 years.

Lipton said Wachtell used the measure six times in 1983 alone, before a court ruled it was legal.

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

Julian Velasco, associate professor at Notre Dame Law School, is not a fan of poison pills. But he calls it the second-greatest “idea” in the history of mergers and acquisitions. (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 clever idea that has dominated other takeover defenses.”

“I wouldn’t dispute your conclusion that this was one of the most valuable tactics a lawyer has found in corporate practice,” Coffee said.

The professors challenged the idea that the original memo is as valuable as I describe it. They note that the poison pill became more effective through the iterations that Lipton later specified.

However, the other memos would not exist without the original. I consider the original memo the legal equivalent of a Michael Jordan rookie card. It commemorates something that ushered in a new way of playing 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 example, in drafting a complaint that leads to a huge settlement or verdict.

It is also useful to draft other types of legal documents for clients. For example, there was the letter the lawyers wrote for Musk declaring his stake in Twitter. Shares of the company jumped 27% after the letter was filed.

Corporate legal documents can also create second-order value for society, businesses, or individuals. A poison pill can help a company frustrate a takeover bid and generate greater shareholder value, or force a buyer to pay a higher price.

I asked Lipton to comment on the broader value the poison pills have created, beyond the revenue generated for lawyers. He did not answer.

But his archives contain an answer. He said he sees poison pills as part of a “personal belief system” about what businesses exist and how they create value.

He discovered 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 would go on to launch The American Lawyer. . (It’s now $215,000.)

One issue that particularly affected Lipton was American Express’ 1978 attempt to acquire McGraw-Hill. Lipton considered not taking the job for the publishing company. Lawyers in his firm were “exhausted” and he had scheduled two weeks off for everyone at the firm, according to his records.

But he took the job, 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 employees and customers. He filed regulatory complaints and a lawsuit to end the deal.

It was one of Lipton’s few early hits. It also changed his perspective on buyouts.

He became convinced that corporations do not exist simply to provide short-term profits to shareholders. They exist to protect employees and preserve quality, among other longer-term goals.

Lipton felt that not allowing directors to respond to takeover attempts was bad for individual companies, while hurting the economy as a whole.

“The overall health of the economy should not in the least be subordinated to the interests of some shareholders to make a profit from a takeover,” Lipton wrote in a seminal paper, published in 1979.

Musk, Carl Icahn and other buyout proponents would disagree with Lipton.

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

worth your time

On the practice of the Supreme Court: Big Law Firms Give Young Lawyers the Prestigious Job of Advocating Before U.S. Supreme Court Kimberly Strawbridge Robinson reports. It’s a change from the “superstar” model where a firm’s most prominent lawyer handles all the cases before the judges, she writes.

Returning to the office: Cooley will allow many of his lawyers and staff to decide whether or not to come to the office when they officially reopen in June, Meghan Tribe reports. The company welcomes “different perspectives, desires, and unique life circumstances” that will impact time 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 joined his former 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 Inc., Saijel Kishan reports.

It’s all for this week ! Thanks for reading and please send me your thoughts, criticisms and advice.

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