Dan Loeb, the American hedge fund manager and chief executive of Third Point LLC, a New York-based hedge fund with a portfolio worth $14 billion has sued the directors of auction house Sotheby’s in order to force the removal of ‘poison pill protections’ that prevent ‘him from acquiring more seats on the board. New York Magazine has noted that Loeb’s “preferred strategy” is to buy into troubled companies, replace inefficient management, and return the companies to profitability, which “is the key to his success.”
Loeb is currently Sotheby’s largest shareholder. Last year he mounted a hostile attack on the company to force changes in the top management. He has now requested that a Delaware court decide if a board can create barriers to protect itself from a shareholder seeking board representation. Loeb’s hedge fund currently has a 9.6 percent stake of Sotheby’s the second largest auction house in the world. The board has consistently blocked Loeb from buying a larger share in the company. It recently announced a massive share sell off to existing shareholders providing they didn’t hold more than ten percent of the company. This excludes Loeb from acquiring a larger stake in Sothebys. The strategy would make it far more expensive for Loeb to build a powerbase in the company.
“Loeb’s suit called it “illegal” and asked the court to overrule it, saying his intention is only to gain seats on the board to change management policies. “At no time has Third Point had any desire to take control of Sotheby’s to remedy these problems,” the suit said. “By adopting a poison pill without any threat of a takeover, the Sotheby’s board showed its disdain for shareholders and accountability and proved that its goal continues to be entrenchment over the interests of its owners,” said Loeb’s attorney Tariq Mundiya of Willkie Farr & Gallagher LLP. Loeb last year attacked the board for wasteful spending on themselves and a poor competitive position against rival high-end art auctioneer Christies’. In January, the board bowed to some of the pressure, announcing a $300 million special dividend, a $150 million share buyback, restructuring of operations and possible property sales. Christie’s has clearly eclipsed Sotheby’s with strong expansion into the Asian market. As of early 2013, Loeb’s personal net worth was $1.5 billion. “The only thing I care about,” he has said, “is making money for my investors.”
The battle between Dan Loeb and Sotheby’s has become increasingly personal over time. The actor George Clooney said in a recent interview in the film trade publication, Deadline Hollywood that Loeb, who is heavily invested in Sony Pictures, was “a hedge fund guy who describes himself as an activist but who knows nothing about our business.” I wonder if this is also relevant in reference to Sotheby’s.