Lipton sees changes in hedge activism

By Dane Hamilton

NEW YORK (Reuters) - Martin Lipton, the famed corporate lawyer who for years advised companies to fight activist hedge funds, now says some companies could do well to listen to some of these dissident shareholders.

Lipton, credited with inventing the "poison pill" anti-takeover defense, told the Reuters Investment Banking Summit in New York that "there has been a very significant change in attitude by target companies."

"Companies today are much more inclined to undertake strategic revisions ranging from management to strategic changes," said Lipton. "I think it's a good thing."

Still, Lipton on the whole indicated he hasn't completely embraced the latest wave of corporate raiders.

Lipton's comments come amid changes in how many campaigns were undertaken by activist hedge funds, which typically buy a stake in a target company and agitate for measures to boost shareholder value, such as buybacks or asset sales.

Previously, activists like billionaire investor Carl Icahn would launch scathing public campaigns to pressure companies to change course. But while the Icahn approach worked in energy company Kerr-McGee, it fell short at a campaign at Time Warner Inc. (TWX.N: Quote, Profile, Research, Stock Buzz).

Some funds, like Pershing Square Capital Management, are taking a more conciliatory approach by engaging corporate managements, offering alternative plans and proposals.

Lipton, a partner in Wachtell, Lipton, Rosen & Katz, said the new approach is winning converts in a corporate world where hedge funds have become significant shareholders in recent years.

"Companies have become very responsive to that," said Lipton, who represented McDonald's Corp. (MCD.N: Quote, Profile, Research, Stock Buzz) when Pershing Square campaigned for changes at the restaurant company last year.

While McDonald's didn't adopt Pershing Square's proposals, it did take other measures that the hedge fund supported and its shares have risen substantially since January, when Pershing ended its campaign.

Still, Lipton, considered one of the world's top mergers and acquisitions lawyers, continues to disparage noisy and aggressive activist campaigns. Some hedge funds, he said, simply want short-term stock gains so they can sell out.

He likened these activities to "greenmail," a 1980s term for corporate raiders who would agitate for changes among their investments and cease only when the company would buy their stake at a premium.

"This is just a different kind of greenmail," said Lipton. "But a company that is well managed and has the fortitude to stand up can easily fend it off."

Time Warner Chief Executive Dick Parsons, who successfully fended off Icahn earlier this year, "handled it superbly," Lipton added.