On Thursday, Third Point’s Dan Loeb nominated himself to the board of Sothebys (NYSE:BID) (or Sotheby’s). Sothebys (NYSE:BID) responded to Loeb on the company’s conference call, stating that Loeb was being unreasonable. Stifel analysts believe this is a rare case where Loeb could be right. Regardless, based on prior history, Loeb is highly unlikely to stop his assault based on Comments from Sothebys (NYSE:BID) CEO below, followed by remarks from Stifel analysts.

Bill Ruprecht – Sothebys (NYSE:BID) – Chairman, President, and CEO

 

Thank you, Patrick. As you know, Third Point filed a 13-D Amendment this morning, in which it submitted its nomination for three candidates to stand for election to Sotheby’s Board of Directors at the 2014 annual meeting. As we noted in our press release earlier today, Sotheby’s has engaged in extensive discussions with Third Point over the past months in an effort to reach a resolution that would avoid a proxy battle. As part of those discussions, Sothebys (NYSE:BID) offered to appoint Mr. Loeb to Sotheby’s Board of Directors, where he would have had the opportunity to serve on three committees, nominating and governance, audit committee, and finance committee.

We are disappointed that Third Point has chosen to pass to nominate directors. It is particularly unfortunate, given Sothebys  efforts to reach an agreement with Mr. Loeb. Those are quite significant events.

We again offered to appoint Mr. Loeb to the Board of Directors, to key committees, to proactively sharing of non-public information under a standard confidentiality agreement. We considered Third Point’s views in developing the company’s recently announced capital allocation and financial policy plan and other initiatives. Six meetings with Third Point in the preceding months, three of which included our lead independent director, and a significant number of conference calls with Third Point end members of the company’s Board of Directors and management team.

 

As we said many time previously, the Board of Directors and management are committed to delivering value for all of Sotheby’s shareholders. We believe that the capital allocation and financial plan, together with the actions Sotheby’s has taken to increase competitiveness and bring complementary expertise to the Board and the leadership team best positions Sothebys  to continue to build value for its clients and shareholders now and in the future. We also note the feedback we received from Mr. Loeb, who in conversations with management, characterized our capital allocation and financial policy plan as the right approach, striking the balance between returning capital to shareholders and continuing to invest in the business.

 

Sothebys  BID
Soethbys (BID) valuation comp chart via Wedbush Securities Research note

We believe our team and our strategy are delivering exceptional results for Sotheby’s clients and delivering value for shareholders. The strengths of the Company is reflected in our equity price, which remains near historic highs and has exceeded the S&P mid-cap for 1-, 5-, and 10-year periods.

 

The Board’s nominating and governance committee will consider Third Point nominations in due course. We do not intend to make any further comments or statements during this call with regard to Third Point, and we thank you for your cooperation in that regard. The remainder of the call and today’s focus is about our year-end and fourth-quarter numbers and the outlook on the business going forward.

David A. Schick, Taylor G. LaBarr, CFA, and Raymond L. Stochel of Stifel analyze the fight between Sothebys (NYSE:BID) and Loeb in a new research report. Below is an excerpt:

BID announced a shareholder rights plan (poison pill) in October (after investments by Third Point, Marcato, and Trian) essentially limiting an activist investor to less than 10% of common stock (though does not inhibit a full 50%+ takeover). We think a proxy vote over Board seats was the logical next step (and largely expected). Criticism from Third Point has changed somewhat with improved capital returns and focus on real estate value. But Mr Loeb indicates expense cuts so far are not enough. We also note international growth is no longer a key critique (though concerns regarding online, private sales, and contemporary share remain the same). Marcato had indicated Sothebys  (NYSE:BID) capital allocation and financial policies plan was just a modest step in the right direction (so activist views are roughly in line). We continue to believe BID is an under-priced asset where a “trophy-asset buyer” may be the end game. BID is a rare case where shareholders, management, employees, and customers all may be potentially better off in a take-private.