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Hedge funds: Forget lawyers, learn from a real active manager

Lawyers are cashing in by advising managements of public companies in ways to ward off evil hedge fund activists. But activism, handled with decorum, can be positive for management and investors. And who better to be an activist than a hedge fund manager? Helen Avery reports.

This article was written prior to the tragic death of Tommy Taylor in a snowmobiling accident, February 19, 2006

A NINE-POINT memo sent to clients by law firm Wachtell, Lipton, Rosen & Kate reads like an excerpt from a terrorism survival guide. “[Companies must] ensure that [their] investment bankers, lawyers and public relations consultants are at the ready with state-of-the-art programs for responding to a potential attack,” advises point number five. “[Companies must not] allow the attackers to achieve the moral high ground... [but] Expose the attackers for what they are...”, instructs point number eight. “Above all, do not be caught off-guard and do not remain passive.”

The “attackers” to whom Wachtell, Lipton, Rosen & Kate dramatically refer are not terrorists, however, but hedge fund managers. Sent at the end of last year, the law firm’s instructions [published in full here] are designed to prepare companies “in this environment of attacks by hedge funds”.

They are, of course, referring to the increasing number of hedge fund managers using their positions as shareholders to enforce change within companies in order to improve returns. From Martin Lipton and his colleagues’ “attackers” to leading German politician Franz Müntefering’s “swarm of locusts”, activists, to give them a less inflammatory name, are often regarded (in Lipton’s words) as “self-seeking short-term speculators looking for a quick profit at the expense of the company and its long-term value”.

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