|
RAPAPORT... Activist investor Daniel Loeb, the CEO of Third Point LLC, called for Sotheby's CEO and president, William F. Ruprecht, to resign and for the role of his successor to be separated from that of chairman of the board.
Loeb wrote, ''Sotheby’s requires a CEO with sufficient knowledge of the global art markets to make critical decisions, who can move seamlessly around the globe building the business and strengthening client relationships. Respectfully, we do not see evidence that you are the right person to repair the company and drive its growth in today’s dynamic global art market.''
In a letter written to Ruprecht and filed with the Securities & Exchange Commission (SEC), Loeb acknowledge that Third Point had increased its stake in Sotheby’s to 9.3 percent of outstanding shares, making it the auctioneer's largest shareholder, and expressed his intent to find a new CEO once he becomes a board member. The executive search will become his ''top priority'' and will be conducted either within or outside the company. ''Based on our due diligence and discussions with participants in the art market, there are at least two internal candidates for the CEO position who warrant serious consideration. We have already begun informal discussions with outside candidates and would welcome the opportunity to bring the internal candidates into a formal process,'' Loeb wrote.
Sotheby’s responded by issuing a statement emphasizing its ''superior results'' from the art market in recent years and a share price increase exceeding the Standard & Poor's midcap index over the one-, five- and 10-year periods. Shares in Sotheby's are up nearly 58 percent year on year and were trading at $50.16 in early afternoon hours.
''The comprehensive capital allocation review already underway demonstrates the company's ongoing efforts to optimize the balance sheet improve the cost of capital and manage financial policies in a way that supports Sotheby's strategy and delivers outstanding value to shareholders.
''Today, rather than debating incendiary and baseless comments, we are focused on serving our clients’ needs during this critical autumn sales season, including this week in Hong Kong, where our offerings are 77 percent higher than the same series last year – the highest estimate of any Sotheby’s sale in Asia,'' Sotheby's note read. Further comment on Third Point's accusations would be made at an appropriate time, the letter concluded.
In Loeb's letter, meanwhile, Third Point appeared troubled by Sotheby's chronically weak operating margins and deteriorating competitive position relative to Christie’s. ''We are not persuaded by management’s explanation that Sotheby’s lower market share is due to uneconomic and predatory behavior by Christie’s to secure major works. Based on discussions with market participants, it is our understanding that it has been Sotheby’s who has most aggressively competed on margin, often by rebating all of the seller’s commission and, in certain instances, much of the buyer’s premium to consignors of contested works. We believe that Sotheby’s should be competing based on the quality of its service, its expertise, and ability to generate the highest possible price for its customer. Regrettably, we have concluded that Sotheby’s malaise is a result of a lack of leadership and strategic vision at its highest levels,'' according to the shareholder.
While Ruprecht was ''an able steward'' for Sotheby's following both the price-fixing scandal in 2000 and the financial crisis of 2008, Loeb charged ahead, saying that Ruprecht had not led the business forward in today’s art market. ''It is apparent to us from our meeting that you do not fully grasp the central importance of contemporary and modern art to the company’s growth strategy, which is highly problematic since these are the categories expanding most rapidly among new collectors,'' according to the letter.
Loeb added that Third Point's research had determined that Sotheby’s ''crisis of leadership'' has created dysfunctional divisions, a fractured culture and a demoralizing recognition among employees that Sotheby’s is not at the cutting edge, as ''demonstrated by the company’s inability to even develop a coherent plan for an Internet sales strategy, much less implement one.''
In the course of Third Point's investigation into Sotheby's business practices, the shareholder alleged that it had uncovered numerous anecdotes of waste. ''Typical of the egregious examples was a story we heard of a recent offsite meeting consisting of an extravagant lunch and dinner at a famous farm-to-table New York area restaurant, where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars. We acknowledge that Sotheby’s is a luxury brand, but there appears to be some confusion – this does not entitle senior management to live a life of luxury at the expense of shareholders,'' Loeb wrote.
Sotheby’s must expand its global footprint, exploit opportunities and use excess capital to judiciously take principal positions on works of art when doing so will not conflict with its clients’ interests, the shareholder stated. ''Third Point is not only Sotheby’s largest shareholder but also has significant experience and a successful track record of serving on public company boards. I am willing to join the board immediately and help recruit several new directors who have experience increasing shareholder value, share a passion for art, understand technology and luxury brands, or have operated top-performing sales organizations. Importantly, our candidates would also better represent Sotheby’s expanding geographic footprint. We support the company placing a designee from another large shareholder on the board as well. Once installed, these new directors would determine what other steps are necessary to ensure that the company benefits from the rigor and direction that comes with having an 'owners’ perspective' in the boardroom,'' Loeb wrote.
|