Sunday, 7 February 2016
Last updated 1 day ago
Apr 30 2014 | 1:41pm ET
Third Point yesterday asked a Delaware judge to strike down Sotheby’s poison pill and to delay its annual meeting, set for next week.
During a day in which Third Point revealed that some of the auction house’s directors actually agree with its criticisms, the hedge fund said that Sotheby’s improperly created two classes of director to stymie its efforts. Third Point said the poison pill was improper because it does not intend to take control of the Sotheby’s board of directors.
Sotheby’s poison pill, which it adopted after Third Point took a 9.6% stake in the company and began agitating for changes, including the ouster of CEO William Ruprecht, allows passive investors to buy up to a 20% stake, but bars activists from owning more than 10% of its shares. Third Point said that the distinction is unfair, and, given that it only seeks three seats on a 12-seat board, is nothing more than the current directors seeking to entrench themselves.
“The directors of Delaware corporations may not use the power of their office to preserve their board seats simply because they disagree” with an investor, Third Point lawyer William Lafferty argued.
If Chancery Court Judge Donald Parsons, who has fast-tracked the case, accedes to Third Point’s requests, it would give the hedge fund a much better chance of electing three directors to Sotheby’s board, including firm founder Daniel Loeb.
Sotheby’s said the poison pill befit the circumstances and was “designed to limit the ability of any person or group to seize control of the company without appropriately compensating all Sotheby’s shareholders.” William Savitt, a lawyer for the auction house, said that the meeting should not be delayed because the poison pill is a “garden variety” measure.
Savitt also alleged that Third Point did plan to seize control of Sotheby’s, alleging that Loeb told others on Wall Street that he planned “on taking over the company.” Those conversations “didn’t happen,” Lafferty said, adding that seeking a board seat has never before been found to “constitute a threat” to a company by Delaware courts.
Instead, he said, Sotheby’s made the move due to their “personal animus” against activist investors like Loeb.
Certainly, some on Sotheby’s board seem to think that Loeb is on to something. Independent director Steven Dodge, who is giving up his seat, wrote in one e-mail that “the board is too comfortable, too chummy and not doing its job. We have handed Loeb a killer set of issues on a platter.” Dodge also wrote to his colleagues that Sotheby’s compensation plan was “red meat for the dogs.”
Another director, John Angelo, wrote to Dodge that he told Ruprecht the CEO was “neither capable nor strong enough to do the work at hand,” and that Ruprecht believed he was given the chairmanship to clear the way for a new CEO.