Sotheby’s Market Cap (as of 4/10/13): $ 3.46bn
Daniel Loeb, CEO of the hedge fund Third Point LLC, announced on the 2nd of October that he has upped his stake in the arts auctioneering firm Sotheby’s to 9.3%, making him the firm’s biggest shareholder. Mr Loeb now holds 6.8m shares worth $350m. In response to a potential hostile takeover, the firm has adopted a shareholder-rights plan to defend itself, known as ‘Poison Pill’, that will set off whenever an outsider acquires ownership of 10% or more of the company. When triggered, the poison pill will allow shareholders to buy more stock cheaply once an unwelcome bidder accumulates a 10% stake, making it more costly for the hostile buyer to buy the rest of the company.
Despite its public troubles, including slipping sales volume and losing ground to arch-rival Christie’s, Sotheby’s share price has doubled since 2010 and is up by more than 40 per cent in 2013 alone. After tough first quarter results, (a 3% decline in revenue from a year earlier) the company hired real estate specialist Investment Bank Eastdil Secured in a bid to sell off their New York headquarters. However, stronger second quarter results (net income was $91.7 mln, 7% increase compared to the same period in 2012) suggested the firm was recovering.
Loeb has launched a scathing attack at the company’s current CEO William Ruprecht, calling for his resignation and claiming that the company has “a lack of leadership and strategic vision.” Furthermore, Loeb expressed his desire to overhaul the company’s current board of directors and replace Ruprecht as CEO.
Loeb is not the only investor with an eye on Sotheby’s. Trian Fund Management LP, the firm run by investor Nelson Peltz, bought 2.07mln Sotheby shares in the first half of 2013, which represent a ca. 3% stake, whilst Marcato Capital Management LLC recently disclosed a 6.7% ownership.
The auction house has long-term debt of $515mln and $699.6mln cash as of June 30, 2013. Its debt-to-equity ratio is 49.5% versus the average 31.6% of peers. Last month, Sotheby’s said that it is reviewing “its capital allocation and financial policies” and that Patrick McClymont, an investment banker from Goldman Sachs would replace its current chief financial officer, William Sheridan.