Auction house battles over control

For Minnesota consumers and entrepreneurs, Sotheby’s is best known for conducting celebrity auctions. However, the 270-year old auction house is engaged in an investor proxy battle over control which will culminate at its May 6 annual meeting. Activist investor and avid art collector Daniel Loeb is seeking a seat on the board and is backing another candidate against the company’s two own candidates.

Loeb’s $14.5 billion hedge fund, Third Point, is Sotheby’s largest investor. He has sought cut in the firm’s costs and for it to become more competitive for months. Sotheby’s earlier offered him a seat on its board of directors.

Two prominent proxy advisory firms offered conflicting reports on how investors should vote. International Shareholder Services back Loeb’s candidates. It said that Sotheby’s revenue growth has been inconsistent and that total operating expenses were added back despite the company’s $185 million cut in 2010. Although ISS said that the dissident’s plans may not be fully developed for the shareholders, this plan is more substantive than what Sotheby has offered.

ISS also claims that the other Loeb-backed candidate has useful experience. He is a former investment banker who operates a private French jewelry company and used firms like Sotheby’s to consign and buy jewels for his own gem company.

Glass Lewis & Company, however, suggested that shareholders vote for the company’s candidates. While it acknowledged that dissidents identified areas of concern, they did not make a compelling case that the company should make additional changes.

Glass Lewis also argued that Loeb does not have a substantive plan, engaged in erratic and disruptive behavior at the firm and his short tenure serving on other public company boards raises questions on whether he will put the interest of all of the company’s shareholders over his own. It also claimed that Sotheby’s addressed shareholder concerns by returning capital to investors and adding more independent members to its board.

Both sides will seek support from uncommitted or undecided investors. These include Blackrock which owns eight percent of Sotheby’s and Vanguard which owns 5.9 percent. Another firm, Marcato Capital Management, has also sought changes and owns 6.6 percent of Sotheby’s.

Wall Street is closely watching this fight over corporate governance. This battle reveals that corporate officers and directors face peril over their longevity and should always stay apprised of their responsibilities and their company’s performance.

Source: Chicago Tribune, “Proxy advisers split backing in battle for Sotheby’s board,” Svea Herbst-Bayliss, Reuters, April 24, 2014

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