Daniel Loeb, the founder of Third Point LLC hedge fund,
announced last week that it has increased its stake in
). Daniel Loeb now holds approximately 6.35 million shares or a
9.3% stake in Sotheby's, up from a 5.7% stake disclosed in August
this year. This makes Loeb the largest shareholder of the
Subsequently, Third Point, which manages assets for
Third Point Reinsurance Ltd
), wrote to Sotheby's expressing its concern about the company's
strategies and managerial practices. Moreover, Third Point asked
for a seat in the board of directors and demanded Sotheby's
present Chairman and CEO Bill Ruprecht to step down.
Just two days after Daniel Loeb's public criticism, the
269-year old auction house Sotheby's adopted a poison pill to
protect itself against hostile or any other takeover tactics.
Sotheby's revealed that the new shareholder right plan will
prevent any single owner to own more than 10% stake (with certain
exceptions) in the company.
Apart from this, the scheme also provides a preferred share
purchase right as dividend for each outstanding share of
Sotheby's stock. The exercise price of this preferred stock has
been kept at $200, making any takeover attempt more complex. Per
the company, the strategic action has been taken after noticing
that its outstanding shares were rapidly accumulated in recent
Of late, Sotheby's is witnessing persistently weak operating
margins and deteriorating market position against its arch-rival,
Christie's. Moreover, Sotheby's businesses have also been hurt by
Internet retailers such as
) offering auctions in their websites.
Despite consistent weak performances, Sotheby's shares have
surged nearly 47% year to date. We believe that the movement in
this stock's share prices is much due to many private equity
firms aggressively increasing their stakes in Sotheby's. In the
beginning of this year, billionaire Nelson Peltz acquired 3%
stake, while hedge fund manager Mark McGuire of Marcato Capital
Management bought 6.6% stake in Sotheby's in August.
Sotheby's exists in more-or-less a duopoly market and thus
private firms or individuals have keen interest in the company. A
revival in its market share and profit will be a lucrative option
for any investors looking to takeover the auction house. However,
the present management is in no mood to let the company go from
its hands and thus trying every means to thwart takeover
Sotheby's currently carries a Zacks Rank #3 (Hold).
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