Activists Face Off at Sotheby’s

Poor Sotheby’s. 

No sooner had the renowned New York auction house succumbed to pressure from activist Dan Loeb of Third Point to oust its Chairman and CEO Bill Ruprecht, than another hedge fund agitator, Mick McGuire of San Francisco-based Mercato Capital, popped up and assailed the company’s “misguided” financial management.

What’s intriguing about McGuire’s activist campaign is that Loeb now sits on Sotheby’s board.  It was Loeb who last year attacked the 270 year-old auctioneer for lagging behind its archrival, London-based Christie’s, in contemporary art sales, online auctions and expansion into Asia.  Loeb also criticized Sotheby’s for abandoning the low end of the art market which enjoys the highest margins and is now also dominated by Christie’s which caters to every segment of the marketplace.  Loeb likened Sotheby’s to “an old master painting desperately in need of restoration.”    

Less than two months after Ruprecht stepped down from Sotheby’s board and eight months after Loeb joined it, McGuire started pressing the company to buy back $500 million of its stock, reduce costs and sack its CFO.  In his letter to the board, McGuire claimed Sotheby’s should return more than $850 million in cash to shareholders from its current reserves, an undrawn credit facility and the leveraging of its real estate assets.

A first for both activists

This is probably the first time Dan Loeb has found himself on the opposite side of an activist campaign and probably also the first time Mick McGuire has attacked a fellow activist.  So far, Sotheby’s board – which now also includes two of Loeb’s nominees – has told McGuire that the company’s top priority is selecting a new CEO after which it will take up the issue of returning capital to shareholders.  We also know that McGuire supported Loeb’s proxy fight against Sotheby’s last spring and that each of the two activists now owns almost 10% of the company.

It’s ironic that Sotheby’s has become the battleground for the first match-up between two world-class activists.  During Ruprecht’s 13-year stewardship, the company’s revenues grew by almost 75% and its stock performed moderately well.  Unfortunately, Christie’s has recently outshined it in almost every aspect of the business.

Let’s see how this titanic contest plays out and whether Dan Loeb’s defense is as good as his offense.