George Lindemann Journal by George Lindemann "Sotheby’s Yields to Hedge Fund Mogul and Allies" @nytimes by MICHAEL J. DE LA MERCED and ALEXANDRA STEVENSON
Julie Jacobson/Associated PressPreparing for Sotheby’s spring sale, beginning on Wednesday.
Updated, 11:48 p.m. | For months, Sotheby’s fought tooth and nail as the hedge fund mogul and longtime client Daniel S. Loeb waged a boardroom war against the auction house in an effort to win board seats and a change in strategy.
Shareholders were set to pick sides at the company’s annual meeting on Tuesday. But as preliminary vote totals late last week showed that Sotheby’s was badly trailing its opponent in investor votes, the company waved a white flag. It agreed on Monday to give Mr. Loeb and two allies the board seats they had been seeking and to allow his firm to increase its stake to 15 percent.
The cease-fire could not have come soon enough. Tuesday is the beginning of the spring auction season in New York, when Sotheby’s and its archrival Christie’s hold their multimillion-dollar sales of Impressionist and contemporary art, the kind now favored by ultrarich collectors around the world. Among the pieces Sotheby’s plans to sell this time around are works by Monet, Matisse and Giacometti, some expected to fetch tens of millions of dollars.
But even as the two sides make peace in one of the bitterest corporate fights in recent memory, fixing Sotheby’s storied reputation as it contends with seismic changes in the business of selling art will be a long slog.
To boot, Sotheby’s will now have an outspoken critic in its boardroom — one who had likened the auction house to “an old master painting in desperate need of restoration” — as the 270-year-old company grapples with competitors eager to claim a cut of the revenue from rare and prominent pieces.
“It’s going to be fascinating what happens next,” said Jeff Rabin, a co-founder of the industry consulting firm Artvest Partners. “I expect a much more aggressive stance from Sotheby’s,” he said, adding that the auction house would focus on changing the strategic direction of the business.
Emmanuel Dunand/Agence France-Presse — Getty Images“Popeye” by Jeff Koons and “Six Self Portraits” by Andy Warhol will be auctioned by Sotheby’s.Since its founding in 1744 to dispose of a British estate’s rare books, Sotheby’s has become one of the most prestigious names in the art world, with a claim to being the oldest listed company on the New York Stock Exchange. And it has survived numerous setbacks, including a nearly ruinous price-fixing scandal and the financial crisis of 2008.
But it could not best one of its most pugnacious foes to date, one of the most successful corporate dissidents of the last two decades. Over the last several months, Mr. Loeb has incessantly criticized the company’s board expenses and attacked what he called chronic underperformance in what should be a robust market for high-end art.
So-called activist investors, professional money managers who seek to shake up companies in a bid to raise their stock prices, have grown in might over recent years. They have amassed huge war chests, to take on some of the biggest names in corporate America — and win more often than not. Companies are increasingly choosing to settle rather than drag out fights with these hedge fund managers: Twenty-two settlements have been announced so far this year, double the figure two years ago, according to the data provider FactSet.
But from the beginning, more has seemed at stake in the Sotheby’s battle. Mr. Loeb is already one of the most feared activists around, and his firm, Third Point, has claimed victory over the likes of Yahoo.
This, however, was about more than making money for his fund: It has also become a test of his art credentials. The billionaire has cultivated a reputation as a top collector; his vast holdings have included works by Andy Warhol and Jean-Michel Basquiat. (One of the Sotheby’s counterattacks that appeared to hit hard was the company’s questioning of his art bona fides.)
The auction house has also faced fierce competition from Christie’s and raced to court the new class of Asian millionaires set to reshape the art sales industry.
Michael Nagle for The New York TimesDaniel S. Loeb, who gained board seats and a larger stake in the firm.Mr. Loeb began the fight last October when he lobbed a firebomb of a letter to Sotheby’s board demanding the ouster of the longtime chief executive William F. Ruprecht. By that point, he had amassed a 9.3 percent stake — now 9.6 percent — and argued that the company spent too lavishly on its board members and had fallen behind on private sales and technology upgrades.
Another hedge fund, Marcato Capital Management, called for an increase in payouts for shareholders. Together, the two posed a serious threat: The investment firms controlled more than 15 percent of Sotheby’s shares, while its board collectively owned just 1 percent.
In January, the auction house announced a plan to return $450 million to investors through dividends and stock buybacks. And key figures on its board and management reached out to Mr. Loeb, seeking a truce by offering him a directorship with assignments on covetable board committees.
But Mr. Loeb, incensed by what he viewed as insufficient offers, began a public battle by seeking three board seats.
Months of political-style campaigning ensued, with flurries of pointed “fight letters” flying back and forth between the two sides.
Behind the scenes, quieter work was being done. Among those opening communication lines from Sotheby’s side were Domenico De Sole, the co-founder of the fashion house Tom Ford and a respected figure on the auction house’s board, and Patrick S. McClymont, a former Goldman Sachs banker who is now Sotheby’s chief financial officer.
And Mr. Loeb and his two board nominees — Harry Wilson, a corporate restructuring expert, and Olivier Reza, a onetime investment banker from a jewelry family — worked the phones constantly from Third Point’s sleek offices in Midtown Manhattan, calling big investors in an effort to build support.
Months of simmering internal frustration erupted into public view last week, when internal emails from both Sotheby’s board members and Mr. Loeb’s camp emerged as part of a lawsuit over a controversial defense maneuver that the company had adopted to defend against the hedge fund manager.
At one point, Mr. Loeb wrote that he would wage a “holy jihad” to “make sure all the Sotheby’s infidels are made aware that there is only one true God.”
A Sotheby’s director, Robert S. Taubman, wrote in a note to the company’s corporate advisers last fall that Mr. Loeb’s suggestions were “terrible — and not good for the business.”
He continued that he thought the company would make a short-term deal with “the devils and it will hang over us forever.”
Though a judge upheld Sotheby’s defense late Friday, the damage had been done. With roughly two-thirds of shareholder votes in going into the weekend, the company’s board nominees were behind Mr. Loeb’s nominees, according to a person briefed on the matter. There was little choice but to pursue peace.
Mr. Loeb said in a statement, “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.”
Investors and analysts seemed relieved that an armistice had been reached, ending months of uncertainty and letting Sotheby’s get back to work. “This is good for shareholders and we are supportive of the settlement,” analysts at Stifel wrote on Monday.
Still, many within the art world have questioned the toll that Mr. Loeb’s campaign has taken on the company, with Christie’s using it as ammunition to smear its competitor’s reputation when pitching for new business.
Sotheby’s officials say their coming sales will be among the biggest in the company’s history, though they will still be smaller than those at Christie’s.
That was much the same last fall, when Sotheby’s contemporary art sale fetched $390 million, while its rival reported $691 million. (Christie’s is privately owned by the French billionaire François-Henri Pinault and discloses no financial results.)
This weekend, it appeared to be business as usual at the Sotheby’s galleries. Among those viewing works by Miró, Picasso and Jeff Koons were the comedian Steve Martin, the hedge fund billionaire Steven A. Cohen and the Russian oligarch Roman Abramovich.