Our quote of the day:


“The activist-hedge-fund attack on Apple — in which one of the most successful, long-term-visionary companies of all time is being told by a money manager that Apple is doing things all wrong and should focus on short-term return of cash — is a clarion call for effective action to deal with the misuse of shareholder power.”

-Marty Lipton, author of “Bite the Apple; Poison the Apple; Paralyze the Company; Wreck the Economy” from NYT


Interesting take from a well respected corporate lawyer. . .

Category: Corporate Management, Hedge Funds, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Marty Lipton on Activist Hedge Funds”

  1. wally says:

    “most successful, long-term-visionary companies of all time”

    Surely that is meant as a joke?

  2. PeterR says:

    AAPL is at the edge of the cliff again — below MA(20) and near recent lows at 435 +/-.

    The next support is around 360 IMO.

  3. gman says:

    Shareholder power? What shareholder power. As an investor in CHK, SD and DELL I could only wish.

    The AAPL example seems like quite an outlier. Management has been stacking boards and enriching themselves while shareholder lose for years.

    Passive holders(ETFs), shares held in “street” name combined with mutual funds rubber stamping management agenda have created quite an “agency” issue in modern corp governance.

  4. Moss says:

    It is the media which gives the activist-hedge-fund a platform. More idol worship.

  5. cdub says:

    So wrong on multiple levels.

    First, shareholders in general have virtually no power: corporate boards are the lapdogs of management, and management only pays lip service to shareholder interests.

    Second, in this particular example, Apple has already said that even if Einhorn wins, the outcome won’t affect whether it actual pursues any such ‘preferred’ stock issuance. In essence, Apple will do whatever it wants regardless of whether Einhorn wins or not.

    This whole episode is simply a public relation campaign by Einhorn to show his investors that he is “doing something” rather than passively watching Apple’s stock fall.

  6. Chrisbo says:

    We get this behavior because tax policy encourages it.

    Perhaps if we just taxed capital gains as a function of how long the investment was held (.98*e^-(t/365)… where t = days the investment was held), the stock market would return to being what it was originally intended for.

    Speculators could still operate short term, they would just pay higher taxes. Long term investors who chose wisely would be rewarded with, effectively, a zero capital gains tax of 0%.

    Corporate governance would improve since there would be a greater percentage of long term shareholders pushing for better board oversight and management could not only focus on things beyond the next quarter, but would be encouraged to do so. Insider information would, effectively, be a useless way to turn a quick gain because taxes would take most of it away.

    While some on Wall Street would scream, the smart ones would figure out a way to thrive in this new environment.

    One simple change. Many possible benefits.

    - Chris

  7. willid3 says:

    not sure that stick holders have any power at all. and most stock is held by funds. who never ask those who actually paid for that any thing, and the funds are more interested in getting more company business so always accept what ever management wants. and the short term management views isn’t based on whats good for shareholders, its whats good for management since a lot of their pay is tied to that. not how well the company actually does over the long term

  8. trail says:

    It concerns me to see corporations building big cash hoards. Eventually someone will get antsy and feel the need to spend that money and squander it. Or steal it. I’d rather see it given back to the shareholders. If Wachovia had given the money back to the shareholders instead of buying Golden West, we would all be in better shape now. Likewise , if HP had given the money back to shareholders instead of buying Compac. And if the managers of Tyco had given the money back to shareholders instead of stealing it, the shareholders would be richer and the managers would be free men. Apple should hold on to what it needs for planned capital expenditures, but the remainder is better off with the shareholders. There is no guarantee or even reasonable expectation that they can wisely invest as much as they have hoarded away.

  9. constantnormal says:

    I continue to marvel at the disconnect between fundamentals and technicals here … I look at CCL (also in the “customer satisfaction” business), with its ongoing series of calamities, and note that it has a valuation (as measured by PE, of whatever form you want) of approximately double that of AAPL, and for all the noise about an impending collapse of Apple’s sales, the data coming out of their customers completely and utterly fails to support that notion.

    If a low-cost alternative was all that it took to unseat a market leader, than Linux would have buried Microsoft a long, long time ago. Cost is not the only thing that drives customers.

    I continue to think that, sooner or later, the market will come to its senses, perhaps when Apple raises its dividend, perhaps when they have $200 billion in cash (even while distributing a decent dividend yield, and continuing to grow, at whatever rate), perhaps when they have $300 billion in cash, or a trillion in cash (just kidding, it will never get that large, as when their cash hoard gets sufficiently large, management has got to examine taking the company private … if there is no advantage to being public, every company should become privately held).

    Perhaps AAPL will begin acquiring content producers (DIS and the other publicly-owned content houses are all well under $100 billion in market cap, and even the privately-owned content shops have their price), or will begin producing their own top-notch content, as Netflix has done. But there are good and valid ways to apply this huge cash hoard, and I am confident that Tim Cook and the other senior executives are looking for the best opportunities to do so.

    I regard Amazon.com as a fascinating experiment in not-for-profit business operation, and can only marvel at how well it is doing at that game. But I am sufficiently skeptical as to not be moved to invest in a not-for-profit business enterprise.

    Silly me, I thought that profits were an important part of why investors put money into an enterprise, and that only fools expect that their investments would return results instantly, or that they would always buy at a low, that their purchases would always increase in value (the housing markets should have demonstrated the folly in that).

    Certainly, there is a point at which one has to throw in the towel and cry “enough!” … but so long as the financial data keeps coming out the way that it is, I see no reason to throw in the towel at this point, even if I cannot predict exactly when or how things will turn around for this stock. Nobody can predict the future, at least not with any degree of specificity.

    But things like returning to the mean, comparative valuation with respect to the markets, and to the industry that a company resides within, those things can, over time, point the general direction of the future. And at the moment, Apple’s direction is distinctly different from that of AAPL.

    That can be opportunity, or disaster, but from their relative directions, I think that one has to bet on opportunity for the long haul. I certainly hope there are a lot os traders betting on hitting the next support level … but if it gets that low, Apple’s management may as well take the company private … and they will be able to.

  10. Pantmaker says:

    There is a great option available to companies that don’t want investor’s opinion, input and control… it’s called don’t go public.

  11. elliotts1961 says:

    Where are all the shareholder activists when it comes to dictating the actions of over leveraged banks with opaque balance sheets?

  12. hammerandtong2001 says:

    Shareholders have “too much” power?

    C’mon. Mr. Lipton needs a good dose of smelling salts.

    I have in fact invested long in many deep value plays with some activist hedge fund managers who would publish – in writing – the wayward habits of executive managers as part of a 13-D filing. Some of the misadventures of the managing classes are amazing.

    Fractional shareholders have never had enough power, let alone too much.


  13. gman says:

    Great marketing for his firm.

    Wachtell, Lipton, Rosen & Katz

    Mr Lipton is well aware of who makes hiring decisions for legal services..for the most part it is management..not shareholders. He is just letting management know “hey we are team players and we are on YOUR side”

    That having been said AAPL is not the worst offender as far as cash as a % of mkt cap..

  14. Livermore Shimervore says:

    When comes the clarion call for supporting more companies that hire more than one U.S. worker for every 10 it employs despite mind-boggling profits and growth?

    Go into an Apple store and its full of wealthy Republicans and do-gooding liberals. They’ll argue until their blue in the face about which set of politicians can put the American worker back on track. Meanwhile they are both shoveling a major part of their disposable income towards enabling communist military spending/power and ignoring all of the other ways they could be supporting their local economies: tourism, private tutoring for kids, hiring contractors to upgrade homes, supporting the local eateries more often, etc.

    For the a-political who don’t rant about Obama or the righ wing, buy AAPL. How much clearer an example of a value stock do you need.

  15. ben22 says:

    In our current reality, where corporations have enough money to lobby for the laws that benefit them the most, laws that are certainly not written for the whole of society, the idea that there need be a “clarion call” against common stock holders and their “misuse of power” is sort of…..hysterical.

    she’s also seeming to imply that since AAPL has done well as a company they couldn’t possibly be wrong about their money management….ok……

  16. Bob A says:

    no question apple has had some powerful visions… but they are in serious need of an updated prescription

  17. S Brennan says:

    I Like Chris’s comment*, but I would add, that the thought of “shareholders” as sole owners of a company, an idea that pervades Wall Street…is utter bull*@#%.

    Employees, venders, customers and communities invest a substantial portion of the companies/corporations net worth. In nations that are currently kicking our collective ass in the manufacturing arena, this principle is well recognized.

    Capitol gains, excluding dividends should be taxed as ordinary income, on shares held less than [X] years, if you really know business, you’ll do well, if you are investing in bubbles, or shake and bake the market in some sleazy scheme you could have a problem. Too bad. We should reward visionaries, not sleazy schemers. I know this would affect decent people who are playing under the current rules of the game…so, implicitly something like this would have to be phased in.


    * “We get this behavior because tax policy encourages it…Perhaps if we just taxed capital gains as a function of how long the investment was held (.98*e^-(t/365)… where t = days the investment was held), the stock market would return to being what it was originally intended for.”

  18. destor23 says:

    Well, yes, Lipton is right that Apple’s management has earned the right not to be so easily second guessed. But, Einhorn is also a long term value creator and is also worth listening to.


    BR: Not lately

  19. MidlifeNocrisis says:

    Somebody please tell me what I’m missing. Don’t people/funds get to decide, of their own free will, whether or not to invest in any company?? Has anyone been forced, against their will, to buy Apple?

  20. hammerandtong2001 says:

    gman: “That having been said AAPL is not the worst offender as far as cash as a % of mkt cap…”

    That is quite true and a very good point.

    Even at the top when Apple was trading at $700 and the news was filled with reports about their cash and equivalents balance of $130 billion (!), their balance sheet cash % was less than 20% of market cap.

    It’s not that long ago, but you may remember after the dot com bust, that there were HUNDREDS of small tech firms trading at what they then-called “sub cash” levels, meaning that the cash sum on the balance sheet was GREATER than the actual market value of the firm. These firms often became the happy playgrounds of activist investors, and many forced mergers, distributions and dutch auctions ensued.


  21. flakester says:

    “Greed is good”


  22. boveri says:

    I’m with Lipton. The notion that the shareholder owns all aspects of a company is modern day nonsense. Any corporation has always had multiple stakeholders beyond the shareholders, i.e., management, employees, customers and the communities within which it operates.

  23. jrob says:

    Which attack?

    The one where he sued Apple for violating SEC rules, and the ruling was in his favor? Or the attack where he tried to convince Apple that a particular course of action was in the best interest of all parties, acknowledging and respecting that Apple’s BOD has full discretion over whether to issue preferred shares, and if so, whether they will submit the plan to shareholders for a vote?

    Either way, whether forcing Apple to follow SEC rules, or asking Apple to consider his idea among other alternatives before making a decision, he is obviously wielding his power tyrannically and he must be stopped.

  24. ben22 says:

    “Perhaps if we just taxed capital gains as a function of how long the investment was held (.98*e^-(t/365)… where t = days the investment was held), the stock market would return to being what it was originally intended for.”

    we already have this

    short term cap gains are taxed at OI and long term cap gains at long term cap gains rates, which for many working folks are lower than the ordinary income tax….

    now you want to make it more complex? To what end?