Dan Loeb bids against himself at Sotheby’s

February 28, 2014

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dan Loeb seems to be bidding against himself at Sotheby’s. The Third Point hedge fund activist surprised the auctioneer by nominating three directors to run against the incumbents, even after the firm offered him one uncontested board seat and even acted on some of his gripes.

Sotheby’s isn’t the likeliest company to find itself in an activist’s crosshairs anyway. Its stock is up 45 percent in the past 12 months. Last year was a strong one for its art sales, too, albeit with the notable exception of the big contemporary category, where bragging rights went to rival Christie’s.

Moreover, activists mostly start proxy hostilities only if a target is largely ignoring them. Sotheby’s was doing at least some of what Loeb had demanded. The company says it held meetings and conference calls with Third Point. Even Loeb expressed grudging approval of recent changes, including a new approach to capital allocation announced last month which, among other things, involves a $300 million special dividend.

The proffered single board seat, along with committee positions, would also have been representative of Third Point’s reported 9.5 percent stake, assuming the board remained 12-strong. Loeb’s written volleys suggest he is capable of holding his own, though there may be a case for more than one fresh voice in the boardroom.

Loeb still has a reasonable gripe with the poison pill Sotheby’s adopted soon after he emerged as an investor – and that may increase support for him and his other two nominees from other shareholders. It’s also a fair criticism that the current board owns less than 1 percent of the company, by Loeb’s count. And he argues that his candidates bring other skills, like Harry Wilson’s turnaround expertise, to the “formidable” task ahead.

It may even be that Loeb, having found that the Sotheby’s brass is malleable to some extent, is now proposing a less aggressive board revamp than he otherwise might have. Even so, the switcheroo plays into the hands of Martin Lipton, the lawyer whose firm is advising Sotheby’s and who has accused some activists of “a form of extortion.”

At least superficially, Loeb has now spurned Sotheby’s attempts to listen to him. The alternative approach leads to poison pills and proxy fights. Loeb has his reasons, but he may just have discouraged other targets from engaging with shareholder agitators.

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