Sotheby’s to allow Loeb and 2 others to join boardSotheby’s and Daniel Loeb on Monday ended their long-running battle and agreed to let the billionaire investor and two of his associates join the auction house’s board.
The decision was reached only hours before Sotheby’s annual meeting on Tuesday and is seen as a big victory for Loeb’s $14.3 billion hedge fund Third Point, the company’s biggest shareholder.
Loeb, a prominent art collector, will join the board which is growing to 15 members from 12. Harry Wilson, a restructuring expert who sat on the board of Yahoo with Loeb, and Olivier Reza, a former investment banker and jewelry expert, will also join.
For months, each side heaped criticism on the other with Loeb having complained about the company’s high costs and Sotheby’s saying that Loeb and his dissident board nominees would not bring relevant experience to the boardroom.
The company put in a shareholder rights plan which limited Loeb’s stake to less than 10 percent. Loeb ran a proxy contest and then challenged the poison pill in court.
Passive investors were permitted to buy up to 20 percent.
Loeb will now be able to raise Third Point’s stake to 15 percent from 9.6 percent.
In return, the hedge fund manager, who made history by challenging the shareholder rights plan in Delaware court, has withdrawn the lawsuit.
“This is a significant win for Loeb,” said Keith Gottfried, a partner at law firm Alston & Bird who advises companies on shareholder activism. “Most of these settlements are reached because of a lack of symmetrical negotiating leverage. Maybe Sotheby’s didn’t have the votes.”
Some board members had privately said that Loeb’s criticisms were correct, according to emails read at a court hearing. “The board is too comfortable, too chummy and not doing its job,” board member Steven Dodge wrote to fellow board member Dennis Weibling in one email.
Loeb last year compared Sotheby’s to “an Old Master painting in desperate need of restoration,” urging cost cuts and criticizing board members for not owning shares of the company.
Sotheby’s Chief Executive Officer Bill Ruprecht welcomed the new directors and said all share a common goal of delivering valued to shareholders.
“This agreement ensures that our focus is on the business and that we will benefit from five fresh voices and viewpoints,” he said.
The settlement not only ends one of the biggest fights for board seats this year, but it also paves the way for other activist investors to take a bigger role in investments they plan to make, industry experts forecast.
Sotheby’s shares climbed 1.8 percent on the news, after it had fallen 16 percent since the start of the year.
Two investors, who are not permitted to speak about their investments publicly, said this year’s share price decline underscored that change was necessary at the board level.