Activist investor Dan Loeb attacks Sotheby’s

Oct 3rd, 2013 | By | Category: Journal
Daniel S. Laub, founder and major shareholder in Third Point LLC

Daniel S. Loeb, founder and major shareholder in Third Point LLC

Activist investor, Daniel S. Loeb, has revealed that his hedge fund, Third Point, is now the largest shareholder in Sotheby’s holding 9.3% of the outstanding shares.  Known for his stellar results and previous shareholder activism at Sony and Yahoo Loeb has now turned his sights on Sotheby’s writing an open letter asking for the resignation of CEO William Ruprecht.  He is also asking for a seat on the board for himself, and various people he would recommend, whilst claiming Sotheby’s has lost its way and is falling behind its rival Christie’s.

Although Sotheby’s has declined to comment on the letter as yet they must be uncomfortable with the attention.  Loeb’s activist approach has produced significant profits for his fund in the past and discomfort for his targets.  In 2012, using Third Point’s 5.8% of Yahoo’s stock Loeb forced the resignation of Yahoo’s CEO Scott Thompson, revealing that Scott had never received the computer science degree he claimed.  Loeb then joined the board himself.

Sotheby’s has attracted significant investors in the past such as Steven Cohen and Alfred Taubman.  Taubman famously said that selling art was no different from selling root beer but this predictably turned out to be untrue and his investment ended badly when he got caught up in the price-fixing scandals between Sotheby’s and Christie’s and ended in jail.   Cohen is believed to have made a profit but he also has had his problems of late.  So Sotheby’s is no stranger to outside investors taking large stakes and then trying to tell them what to do.  Loeb is not the first investor to think he understands the art market after buying a few works by the likes of Richard Prince but Sotheby’s have been successfully selling art since 1744 and know this rapidly changing and hugely complicated market as well as anyone. They will be selling art long after Loeb has taken his profit or loss but in the short-term it will be interesting to see how this develops.

Loeb’s main complaints are listed below and they seem to be: – Sotheby’s don’t grasp the significance of the Contemporary and Modern Art market (Sotheby’s are well aware of the current fashion for this sector but they have to be careful in overcommitting to it because fashion’s for different periods do change), Ruprecht is overpaid at $6m(this is a fraction of what Loeb earns and in line with other CEO’s so what’s the big deal?), that Sotheby’s had an expensive lunch for its senior staff in a restaurant(this just sounds petty and pathetic…where are they supposed to go? Macdonalds?), that Sotheby’s need a larger global footprint(they have expanded into China and are pushing into the middle East….where does Loeb want them to go?), that Sotheby’s should take more principal positions in artworks(Sotheby’s are auctioneers not dealers and are rapidly expanding their private sales business anyway…they have to be careful with guarantees i.e. taking principal positions, because it cost them a bundle last time the market turned south), that Sotheby’s should make use of Third Point’s ‘significant experience and track record of serving on public company boards’ by giving Loeb and his recommendations seats on the board(sounds to me like he would be a nuisance telling everyone what to do.)

A precis of Loeb’s letter follows:-

Contemporary and modern art is the future: “We acknowledge that you, Mr. Ruprecht, were an able steward for the Company following both the price fixing scandal in 2000 and the financial crisis in 2008. Unfortunately, you have not led the business forward in today’s art market. It is apparent to us from our meeting that you do not fully grasp the central importance of Contemporary and Modern art to the Company’s growth strategy, which is highly problematic since these are the categories expanding most rapidly among new collectors. This is not to say that Sotheby’s entire portfolio of art, antique, and collectible departments is not critically important – it is. However, Sotheby’s success will be defined in large part by its ability to generate sales and profits in Contemporary and Modern art, as this is where the greatest growth potential lies.”

A comment on executive pay: “In sharp contrast to your limited stock holdings is a generous package of cash pay, perquisites, and other compensation. We see little evidence justifying your 2012 total compensation of $6,300,399 in both salary and PSU awards valued at over $4 million, seemingly based on a mysterious target not disclosed in any of the Company’s public filings.”

The strategy is “puzzling”: “Sotheby’s current ‘strategy’ is puzzling. The Company has stated that it intends to focus on ‘top clients’ and high value lots, and shun the lower value lots that your top competitor has effectively captured by leveraging new technologies. Despite this ‘focus’, Sotheby’s market share relative to Christie’s in items over $1 million actually trails its overall market share.” (emphasis in original)

The ‘Farm-to-Table’ event: “In the course of our investigation into the Company’s business practices, we came across numerous anecdotes of waste. Typical of the egregious examples was a story we heard of a recent offsite meeting consisting of an extravagant lunch and dinner at a famous ‘farm-to-table’ New York area restaurant where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars. We acknowledge that Sotheby’s is a luxury brand, but there appears to be some confusion – this does not entitle senior management to live a life of luxury at the expense of shareholders.”

The bright side: It just needs some work: “Sotheby’s is like an old master painting in desperate need of restoration. Auctions, private and internet sales all need to be reinvigorated or revamped. Sotheby’s global footprint must expand, and opportunities to exploit the Sotheby’s brand through adjacent businesses should be considered. Sotheby’s can also use its unique position and potential excess capital to judiciously take principal positions in works of art when doing so would not conflict with its clients’ interests.”

The fix: “As with any important restoration, Sotheby’s must first bring in the right technicians. Third Point is not only Sotheby’s largest shareholder but also has significant experience and a successful track record of serving on public company boards. I am willing to join the board immediately and help recruit several new directors who have experience increasing shareholder value, share a passion for art, understand technology and luxury brands, or have operated top-performing sales organizations. Importantly, our candidates would also better represent Sotheby’s expanding geographic footprint. We support the Company placing a designee from another large shareholder on the Board as well.”


Tags: Activist shareholders, art market, Daniel S. Loeb, Loeb's letter to Sotheby's, Sotheby's, Third Point LLC

2 Comments to “Activist investor Dan Loeb attacks Sotheby’s”

  1. Popetzermut says:

    Dear Mr Loeb,

    I had a chance to meet you in Paris, when Third Point was listed few years ago, a major French bank I was working with at that time being your sponsor.
    Since then, I have created my own art trading company and would be delighted to demonstrate how Sotheby’s is selling fakes on purpose, creating terrible damages to art and is NOT compliant with regulatory rules in various countries for years.

    Kind regards

  2. Josephine says:

    The Great Contemporary Art Bubble
    Everyone can produce Damien Hearst’s butterfly – anyway it was done by his numerous slaves.
    But nobody can imitate my works.
    I carry on Russian Avant guard tradition
    My teachers are Kandinsky, Malevich and Filonov.
    . I studied in Moscow and reside in Jerusalem.
    Would you like to work with me?

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