Third Point’s Dan Loeb

On April 4th the activist investor Dan Loeb fired off another open letter to Sotheby’s shareholders calling for support for himself and two others to join the Sotheby’s board and detailing all that he believes is wrong at Sotheby’s.  He says that Sotheby’s has, “lost market share in highly profitable areas like Contemporary Art while its margins have badly deteriorated” and that, “the Company’s slide is a consequence of failed leadership” and so on.  According to Loeb the addition of himself, Harry Wilson and Oliver Reza to the board is the answer.  Apparently these three would provide, “fresh, outsider perspectives” to the board, “to ask the tough questions.”

Sotheby’s then posted a thorough and detailed response by issuing a 54 page Proxy Statement to the United States Securities and Exchange Commission (for the full letter see below)

http://www.sec.gov/Archives/edgar/data/823094/000119312514135640/d707681ddefa14a.htm

which is an interesting read for anyone interested in the current state of the art market and where Sotheby’s sees the market heading.  Sotheby’s claim they have the right board and that, “Third Point (Loeb’s vehicle) has made no case that change is warranted; Mr Loeb’s Slate adds no incremental relevant expertise to your board.”  They also point out that Sotheby’s was the fastest growing auction house in 2013 and Q1 2014.

Sotheby’s are of the opinion that, “Mr Loeb and his nominees would be advocates only for Mr Loeb’s interests rather than all the shareholders based on:-

– Mr Loeb’s behaviour with Sotheby’s(and that he would be a disruptive director) and that he has not articulated any reason for change

– His history as a short-term Board member at other companies

– the self interested transaction he executed to sell shares back to Yahoo.”

Sotheby’s go on to analyse how they are doing in all markets, how they receive their revenue and where they see the art market developing.  They also analyse Loeb’s previous behaviour as a shareholder and the knowledge of the art world (or rather the lack of it) of Loeb and his other two proposed directors.

Sotheby’s claim Loeb has been a shareholder for over a year and that they have tried to work with him and offered him a place on the board back in early 2014.  Sotheby’s share price has recently been on a slide sinking from a 52 week high of 54 to today’s price of 42.05.  It is not known what price Loeb came on board but he is probably sitting on a loss which must be adding to the pressure.  The slide in the share price has started to attract some attention with hedge fund manager Jim Chanos recently appearing on CNBC and pointing out that Sotheby’s stock is a decent gauge of where the top 1% of investors put some of their money.  Chanos maintains that shares in Sotheby’s have peaked before every financial bubble since 1987 and that the fact that Sotheby’s stock (BID) appears to have started to decline indicates trouble ahead for the general market.

Sotheby’s are certainly mounting a vigorous defense against Loeb, perhaps more than he expected based on previous successes gained from using similar tactics on other companies.  They do not seem to believe that he understands their business, or that he and his colleagues would add value as board members and they are doing their utmost to show they are on track with their current performance, management and strategy.  How this will play out is anyone’s guess but for the time being it seems that Sotheby’s are keeping Loeb at bay.