Dan Loeb letter to sotheby’s (BID)
The Reporting Persons initially filed a Schedule 13D in August after concluding that Sotheby’s – one of the world’s foremost luxury brands – was languishing and lacked the resolve to change despite the obvious need to do so. We commend the Company for taking some action following our filing and believe these expeditious improvements demonstrate the benefits of engaging with shareholders. Today, much remains to be done to enhance the Company’s competitive position, improve its strategy and boost shareholder value. As Sotheby’s largest shareholder, the Reporting Persons remain firm in their conviction that the current Board will benefit greatly from new perspectives and different expertise to move the Company forward. Therefore we are nominating three new Directors to the Board.
Sotheby’s has made some improvements since our filing, most notably in certain capital allocation practices. The Company’s focus on returning capital to shareholders was long delayed, but welcome. Additionally, Sotheby’s effort to value its London and New York City headquarters for possible sale shows an overdue recognition of the importance of optimizing the Company’s balance sheet.
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We believe these prompt and long overdue developments make the case that the Company and all shareholders will benefit from having an owner’s perspective in the boardroom. While the Reporting Persons currently own almost 10% of the Company’s common stock, the Company’s Directors’ collective holdings are less than 1%, with only two members of the Board holding above 0.1% of shares outstanding. The Board’s refusal to fully embrace its shareholders’ desire for change was revealed by its adoption of a “poison pill” in October. We believe the pill has been put into place solely to entrench the current Board and is wrongful. As a response to shareholder demands for increased transparency and accountability, the pill demonstrated that this Board’s paramount interest is in ensuring its members are protected rather than maximizing value by considering shareholders’ (evidently valid) suggestions for improvement. No action could have revealed more clearly the need for new blood and fresh views in the boardroom at this critical inflection point for Sotheby’s.
The Reporting Persons also believe the entrenched Directors lack the fresh perspective necessary to overhaul the Company’s challenged operational structure and cure its cultural malaise. Institutional Shareholder Services recently released “QuickScore 2.0” guidelines for optimal board structure, stating that “tenure of more than nine years (can)…potentially compromise a director’s independence.” Using this metric, Sotheby’s current Board fares poorly, with five of its twelve current Directors in service for over nine years and 75% of current directors seated for at least seven years.
The Reporting Persons contend that the entrenched Board also lacks an expert in the type of fundamental corporate restructuring that Sotheby’s must undertake. The tasks ahead for this Board remain formidable – including critical cost-cutting treated only superficially to date and further leveraging the company’s brand and market knowledge to capture a greater share of the global art profit pool by refocusing online initiatives, increasing private sales, and taking a larger slice of the contemporary art market. It is a matter of concern to all shareholders that no Board member today possesses a demonstrated track record in this type of restructuring.
Finally, the Reporting Persons believe that despite the recent appointment of Domenico De Sole, all shareholders will benefit from further depth of experience in Sotheby’s key business building block: luxury customer relationship development.
Based on these views, the Reporting Persons today provided formal notice to the Issuer that they will nominate Daniel S. Loeb, Harry J. Wilson, and Olivier Reza (the “Third Point Nominees”) for election to the Board at the 2014 Annual Meeting.
Daniel S. Loeb is the Chief Executive Officer and Founder of Third Point LLC, a New York-based institutional asset manager with over $14 billion under management.