Seven months ago, Dan Loeb sent anÂ acerbic letterÂ to Sothebyâ€™s, disclosing he owned 9.3% of the auction houseâ€™s shares. The Third Point hedge-fund founder demanded several board seats, cost cutting, and the CEOâ€™s resignation.
Now, after a bitter and expensive legal battle, Sothebyâ€™s is giving Loeb pretty muchÂ what he asked for: the company is expanding its board from 12 to 15. The three new seats will be filled by Loeb, Harry Wilson (a restructuring expert), and Olivier Reza (a former investment banker and jewelry expert). The company is dropping itsÂ poison pill, which limited Loeb to less than 10% ownership. In return, Loeb is droppingÂ his lawsuitchallenging Sothebyâ€™s plan. He also agreed to cap his ownership at 15%Â and let Sothebyâ€™s CEO William Ruprecht stay in his job â€” at least for now.
The outcome makes law professorÂ Steven DavidoffÂ wonder why the company put up a fight against Loebâ€™s demands at all: â€śDid Sothebyâ€™s really have to spend well over $10 million to fight off Daniel Loebâ€™s Third Point only to cave at the last minute to give Mr Loeb almost everything he demanded?â€ť Davidoff cites FactSet data showing that activists win 60% of proxy contests that are voted on by shareholders. As a result, Davidoff says the best way for companies to deal with their demands is negotiate quickly, before things escalate.
Reutersâ€™ Alison FrankelÂ thinks the outcome should worry cosseted board members, even though Loeb lost hisÂ court caseÂ against Sothebyâ€™s. Investors like Loeb areÂ no longer outsiders. Dismissing their demands is tough, especially when normally mild-mannered pension funds end up agreeing with them, as happened in this case.
Matt LevineÂ thinks â€śthe main issue is not the poison pill but just who was going to win the voteâ€ť over the composition of the board, and Sothebyâ€™s didnâ€™t want to risk losing. Levine also points out that the companyâ€™s attempts to placate Loeb â€“ by, among other things, authorizing a $450 million share buyback â€“ failed. The board seemed to be doing what it thought an activist investor would want, rather than what Loeb asked for (Loeb never asked for a buyback.) It seems that Loeb really does want control over the strategic direction of the company. He now has something close to that. â€”Â Ben Walsh
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