Sotheby's, Third Point Reach Agreement on Board Seats - Analyst Blog

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The long-running battle between Sotheby's ( BID ) and Third Point LLC came to an end after the 270-year old auction house announced yesterday that it is ready to let the hedge fund company appoint three members to its board.

The company declared that it will expand its number of board members to 15 from the previous count of 12 to accommodate the additional members. Along with Daniel S. Loeb, who is the founder of Third Point LLC, Olivier Reza and Harry J. Wilson, will join the board.

Last year in October, Third Point which manages assets for Third Point Reinsurance Ltd. ( TPRE ) wrote to Sotheby's expressing its concern about the company's strategies and managerial practices. Moreover, Third Point asked for a seat on the board of directors and demanded Sotheby's present Chairman and CEO Bill Ruprecht to step down.

Concurrent with this, the hedge fund company also revealed that it has increased its stake in the company to 9.3% from 5.7% disclosed in August 2013, making it the largest shareholder in Sotheby's.

Therefore, Sotheby's adopted a poison pill to protect itself against hostile or any other takeover tactics. This shareholder right plan will prevent any single owner to own more than 10% stake (with certain exceptions) in the company.

However, under the new agreement between the two companies, Sotheby's will terminate the one year poison pill. Further, the agreement also facilitates the hedge fund company to raise its stake in Sotheby's to 15%. In consideration, Third Point has withdrawn its litigation against Sotheby's poison pill.

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 the Internet retailers such as Amazon.com Inc. ( AMZN ) and eBay Inc. ( EBAY ) offering auctions on their websites.

Sotheby's exists in more-or-less a duopoly market, and thus private firms or individuals have a keen interest in the company. In the beginning of 2013, billionaire Nelson Peltz acquired a 3% stake, while hedge fund manager Mark McGuire of Marcato Capital Management bought a 6.6% stake in Sotheby's in August last year. A revival in its market share and profit will be a lucrative option for investors looking to takeover the auction house.

Sotheby's shares increased approximately 3.3% yesterday and closed trade at $44.80. Currently, the company carries a Zacks Rank #2 (Buy).

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THIRD PT REINSR (TPRE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: AMZN , BID , EBAY , TPRE

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