Sotheby’s battles activist investor with poison pill

Oct 09, 2013
<p>Auction house announces shareholder rights plan to counter Daniel Loeb expanding stake</p>

World-renowned auction house Sotheby’s has offered shareholders the right to double their equity holding in the company should any investor’s stake exceed 10 percent, in what is known as a ‘poison pill’ defense. The announcement was made in order to counteract any potential plans being brewed by activist investor Daniel Loeb, who currently holds a 9.3 percent stake in Sotheby’s.

Loeb, who manages the hedge fund Third Point, is well known for his aggressive poison-pen letters to corporate management and rival fund managers. Earlier this week, he penned one such letter calling for Sotheby’s chief executive to step down, amid criticism of the auction house’s ‘lack of leadership and strategic vision at its highest levels.’

Though Loeb’s personal holding in the company might trigger the shareholder rights program, Third Point is believed to hold only a 5.7 percent stake in the company. Other activist hedge funds, however, are known to have bigger stakes in the firm.

Should Third Point or Loeb achieve a 10 percent stake, it is his intention to install a new CEO and management structure at the company, once a position on Sotheby’s board is gained. ‘Based on our due diligence and discussions with participants in the art market, there are at least two internal candidates for the CEO position who warrant serious consideration,’ reads the letter, before adding that ‘informal discussions’ with external candidates have already begun.

Bill Ruprecht, Sotheby’s chief executive, said on Friday the plan ‘is designed to protect the interests of all of our shareholders. We look forward to continuing to engage in constructive dialogue with our investors regarding our plans for the business, our comprehensive capital allocation and financial review currently under way, and avenues for enhancing and delivering value to our shareholders.’

Following the poison pill, Loeb wrote another letter in which he compares Sotheby’s current state to ‘an old master painting in desperate need of restoration’, calling for the auctioneer to revamp traditional, private and online sales. It later reaffirms a wish to install ‘the right technicians’ at the head of the company, in the form of new directors.

‘Third Point is disappointed that Sotheby’s board of directors has trotted out the poison pill – a relic from the 1980s. It would be unfortunate if it instead refuses to undertake a fresh start until one is imposed upon it during proxy season,’ the letter continues. 

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