Sotheby's, Third Point Reach Settlement Sotheby's Board Expanded; Daniel Loeb, Olivier Reza, and Harry Wilson Appointed
Activist investor Daniel Loeb and auction house Sotheby's announced a settlement Monday that concludes his seven-month campaign to shake up the company a day before shareholders were to vote on his board candidates.
The pact gives Mr. Loeb three board seats by expanding the board to 15 people, rather than seeing Mr. Loeb's candidates go up against company nominees. The deal also caps Mr. Loeb's stock ownership at 15%. His hedge fund, Third Point LLC, currently owns about 9.6%, but had sought the ability to go to 20%, a request the company had blocked, leading Third Point to sue.
Sotheby's shares on Monday rose about 2%, or 95 cents, to $44.34.
Settlements, even hours before a scheduled vote, have become more common for activists and their targets, as advisers believe it is better to hammer out a deal than risk a divisive shareholder vote.
Through last week, there had been 20 settlements between companies and activists so far this year, equaling the most at this date since 2009, according to FactSet SharkWatch, a data provider.
In a joint statement Monday, Mr. Loeb said: "As of today 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 to enhance long-term value on behalf of all shareholders." Sotheby's Chairman and Chief Executive William Ruprecht said the agreement "ensures that our focus is on the business."
As part of the deal, Mr. Loeb, Olivier Reza, and Harry J. Wilson have been appointed to the board and will be included in the company's slate of nominees at the 2014 annual meeting
Monday's agreement comes after a Delaware judge on Friday blessed Sotheby's so-called poison pill that limited the amount of stock Third Point could acquire. Beyond that legal issue, a court hearing last week in the suit enabled Third Point to surface internal board emails showing support for Mr. Loeb's point of view; inflammatory comments by Mr. Loeb also were revealed. The airing of the various remarks added to the drama of a campaign that had captivated both Wall Street and the art world.
Mr. Loeb is no stranger to board rooms that he has spent time publicly attacking. At Yahoo Inc. YHOO +0.11% he waged a several-month war that saw a newly hired CEO fired, before he joined the board. The shares of Yahoo rose more than 85% during the time he was on the board, which was just over a year.
Sotheby's criticized his exit at Yahoo in its presentations to shareholders, just one of the heated points that will now need to be put aside in the boardroom.
At one point, according to a Friday court ruling, Mr. Loeb emailed allies he was waging a "holy jihad" with the plan to "undermine the credibility" of Mr. Ruprecht. Mr. Loeb said the email was intended as a joke and not meant to offend.
Mr. Ruprecht referred to Mr. Loeb as "scum" to another board member and said his campaign was about "ego," the judge's ruling said.
Other directors, however, worried Mr. Loeb's criticisms were on point and raised concerns about the company's spending and Mr. Ruprecht's compensation, according to court testimony.
Putting such distractions behind the company is "good for shareholders," Stifel Nicolaus & Co. analyst David Schick wrote Monday, as it allows the company to get back to business.
That will include its spring series of Impressionist, modern and contemporary art sales that are expected to achieve at least $684 million combined during the next two weeks. Mr. Loeb has argued that Sotheby's has fallen behind rival Christie's International PLC in selling contemporary art. Christie's contemporary sale on May 13 is expected to achieve at least $500 million alone.
Mr. Loeb is among an emerging class of hedge fund collectors who frequent both auction houses, ratcheting up prices for contemporary artists and quickly turning them for a profit. The average holding period for contemporary art has shrunk from at least a decade to about two years, according to a former Sotheby's specialist.