Carl Icahn livened a deadly dull late August Monday with a blog post in which he attacked old nemesis Marty Lipton, the M&A lawyer who made his name and fortune defending corporate America. In a recent memorandum to clients, Lipton argued that Anheuser-Busch Cos. Inc. left itself vulnerable by removing its staggered board in exchange for one in which all directors face reelection every year. InBev NV took advantage of the move to swoop down on AB, Lipton argues.
Continue reading below
Icahn, of course, sees Lipton's hand-wringing as misguided. The old raider writes: "Unfortunately, Lipton has it all wrong in this classic anti-shareholder view. His opinion suggests that it is a good thing that the maker of Budweiser should be protected from takeovers to maintain the cozy 'status quo' of its boardroom."
But neither view is sufficiently nuanced. AB's move was a recognition of reality. In only a few cases has a company with a staggered board not capitulated to a hostile bidder after losing a contested election: Wallace Computer Services Inc. fended off a bid from Moore Corp. in the mid-1990s, and Circon Corp. warded off one from U.S. Surgical Corp. a few years later only to sell to Tyco International Inc. in a friendly deal in 1998.
Steve Koch, then the head of M&A at CSFB, expressed the conventional wisdom on the issue at a conference in 2000: "To my knowledge there are only two instances, Wallace Computer and Circon, in which a board has actually lost a class of directors and they haven't moved on to resolve the situation. I can't find a board that's interested in being a poster child for that situation. It's not going to happen. As a practical matter, all takeover battles have a duration of one year or less."
Thus companies that have opted to destagger their boards have done so in the belief that such a move is a recognition of reality rather than the abandonment of a robust takeover defense. Lipton and Icahn both know this, and yet they persist in focusing on the staggered board as a corporate governance issue almost as important as the poison pill, another red herring in the governance debates. Perhaps they do so for for sport, or in the belief that restating their positions serves to burnish their respective reputations. - David Marcus
