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Third Point’s Assault on Sotheby’s Yields Results

The single largest shareholder in the auction house, Dan Loeb’s hedge fund firm is pressing for changes that will boost profits.

When Dan Loeb threw down the gauntlet to auction house Sotheby’s, it looked like hubris. What did the hedge fund manager know about buying and selling art? Loeb, founder of New York–based Third Point, has a big contemporary art collection and took an art course while an undergrad at Columbia, but he’s no professional expert.

In an October 2013 letter addressed to Sotheby’s chairman, president and CEO William Ruprecht and filed with the SEC, Loeb announced that Third Point had a 9.3 percent stake in the company, making it the single largest shareholder. He proposed steps to improve profitability, including appointing him to the board and finding a new CEO.

Other activist hedge fund investors in Sotheby’s included San Francisco’s Marcato Capital Management and New York–based Trian Fund Management. (Trian, run by activist investor Nelson Peltz, sold its stock last November.) Last September, soon after Loeb began amassing his position, Standard & Poor’s put Sotheby’s on watch for a downgrade, from BB+.

Loeb, 52, wrote that he was “troubled by the Company’s chronically weak operating margins and deteriorating competitive position relative to Christie’s, as evidenced by each of the Contemporary and Modern art evening sales over the last several years.” Sotheby’s, he argued, has been losing market share to rival Christie’s and hasn’t appeared able to adapt to the present art market’s Internet-savvy global consumer base. “Regrettably we have concluded that Sotheby’s malaise is a result of lack of leadership and strategic vision at its highest level,” Loeb wrote.

In January, Sotheby’s announced the results of a review its board commissioned last September. The company said it’s taking steps “that demonstrate its ongoing commitment to creating and returning long-term value to shareholders and positioning Sotheby’s to capitalize on future business opportunities.” It proposed a $300 million shareholder dividend in March, authorized a $150 million share buyback and has plans for an annual dividend. It also recommended developing two separate capital structures, one for the auction and sales business and one for Sotheby’s Financial Services, its financing arm, and is looking at selling its New York headquarters and London property.

This news failed to buoy the company’s stock price and seemed to leave Loeb’s complaints mostly unaddressed. In mid-February, Sotheby’s shares were trading in the $45 range, down from $53.51 on January 3. Third Point started buying stock last August, when it was about $38. With Sotheby’s due to hold its annual general meeting in the spring and soliciting board nominations, it’s time for Loeb, a trustee of the Museum of Contemporary Art in Los Angeles, to make his next move.

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