Seven months ago, Dan Loeb sent an acerbic letter to Sotheby’s, disclosing he owned 9.3% of the auction house’s shares. The Third Point hedge-fund founder demanded several board seats, cost cutting, and the CEO’s resignation.
Now, after a bitter and expensive legal battle, Sotheby’s is giving Loeb pretty much 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 its poison pill, which limited Loeb to less than 10% ownership. In return, Loeb is dropping his lawsuitchallenging Sotheby’s plan. He also agreed to cap his ownership at 15% and let Sotheby’s CEO William Ruprecht stay in his job — at least for now.
The outcome makes law professor Steven Davidoff wonder why the company put up a fight against Loeb’s demands at all: “Did Sotheby’s really have to spend well over $10 million to fight off Daniel Loeb’s Third Point only to cave at the last minute to give Mr Loeb almost everything he demanded?” 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.
Reuters’ Alison Frankel thinks the outcome should worry cosseted board members, even though Loeb lost his court case against Sotheby’s. Investors like Loeb are 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 Levine thinks “the main issue is not the poison pill but just who was going to win the vote” over the composition of the board, and Sotheby’s didn’t want to risk losing. Levine also points out that the company’s attempts to placate Loeb – by, among other things, authorizing a $450 million share buyback – 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. — Ben Walsh
On to today’s links: