By Stephen Foley in New York
Sotheby’s, the 270-year-old auction house, is to give board seats to Dan Loeb and two of his nominees after succumbing to months of pressure from the activist hedge fund manager.
The climbdown came on the eve of a shareholder vote in which Mr Loeb’s candidates were expected to win considerable support and represents the latest victory for activist hedge funds, which are wielding more power than ever before.
It also presages a shake-up at Sotheby’s, which Mr Loeb has characterised as “an old master painting in desperate need of restoration”. Mr Loeb’s hedge fund Third Point, which holds a 9.6 per cent stake in the auction house and is its biggest shareholder, wants to push it to improve its online sales and to take on Christie’s dominance of the contemporary art market.
The arrival of three previously hostile board members could add to pressure on Sotheby’s chief executive William Ruprecht, whom Mr Loeb once accused of “living a life of luxury at the expense of shareholders”. Mr Loeb has since dropped his demand for Mr Ruprecht to be replaced.
US companies have increasingly invited activists and their nominees in to the boardroom over the past year, rather than face a damaging public election campaign. ValueAct was granted a board seat at Microsoft and Carl Icahn was given two at Hologic. Additionally, companies are taking on activists’ recommendations for independent board members.
Activists have a record $75bn under management, which gives them the power to take on larger companies. Institutional investors are also increasingly supporting moves to shake up entrenched boards.
The details of the agreement between Sotheby’s and Mr Loeb, which is expected to be published today, is likely to include a clause that prevents the hedge fund manager from making any further public criticism of the company.
In a statement yesterday, Mr Loeb said: “We see ourselves not as the Third Point nominees but as Sotheby’s directors, and we expect to work collaboratively with our fellow board members.” As recently as last week, Sotheby’s was arguing that none of the three was qualified to join the board while criticising Mr Loeb’s record as a director of public companies.
Late on Friday, a Delaware judge sided with Sotheby’s in a dispute over whether Mr Loeb should be allowed to increase his stake beyond 9 per cent. A poison pill capping him at 10 per cent was justified to prevent his “creeping control”, according to the ruling.
At a hearing last week, it was revealed that Sotheby’s advisers believed the vote was too close to call and Mr Loeb had a strong chance of winning board seats. Also joining the board will be Harry Wilson, a corporate restructuring adviser, and Olivier Reza, head of the luxury jeweller, the House of Alexandre Reza. (FT)