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The Devil in the Details: More on Sotheby’s-Third Point Agreement

Daniel Loeb

Daniel Loeb

In coming to an agreement with Sotheby’s after an acrimonious proxy battle, activist investor Daniel Loeb has gained more from the auction house than three seats on its board.

Attached to the Amended General Statement of Beneficial Ownership that Sotheby’s filed today with the SEC is the full agreement (starting on p. 12 of the document) between the auction firm and Daniel Loeb’s Third Point. Through the creation of a new Business Strategy Committee, it confers on Loeb and his two other board designees more sway over Sotheby’s future than their control of one-fifth of the board seats might suggest. That key committee will consist of seven members, three of whom will be Loeb’s triumvirate. The board’s current lead independent director, Domenico De Sole, will serve as the committee’s chair.

The new board members, aside from Loeb, who owns a 9.64% stake in Sotheby’s, will be Harry Wilson, a corporate restructuring expert, with 0.03%; and Olivier Reza, a former investment banker and jewelry-firm head, with 0.01%.

The new Strategy Committee will help chart Sotheby’s future by “reviewing and evaluating the Company’s business strategies” and “reviewing and evaluating strategies regarding growth opportunities, marketing, sales, operations, expense management, and the use of all technology in the business.” Its findings and recommendations will be reported to the full board within six months of its first meeting,

Other details from the agreement:

—Although the Sotheby’s board will now be increased from 12 to 15 members (the additions are Loeb and his two designees), it will be reduced in size to “not greater than 13” by the completion of next year’s annual meeting.

—Loeb will be “offered the opportunity” to be on the board’s Nominating and Corporate Governance Committee, Business Strategy Committee (discussed above) and the Executive Committee; Wilson to the Finance Committee, Business Strategy Committee and Compensation Committee; Reza to the Finance Committee and Business Strategy Committee.

—The Third Point designees (assuming they meet legal requirements) will also “be entitled” to membership on the Audit, Compensation and Nominating and Corporate Governance Committees and will be “offered the opportunity to be a member of each committee of the Board” [emphasis added].

—Both sides have agreed for a limited “standstill period” not to “make, or cause to be made, any statement or announcement that relates to and constitutes an ad hominem attack on, or relates to and otherwise disparages, the Company, its officers or its directors or any person who has served as an officer or director of the Company in the past, or who serves on or following the date of this Agreement as an officer or director of the Company.”

Already at least one commentator—Ohio State University professor Steven Davidoff, in the NY Times—has started second-guessing how Sotheby’s handled a battle that was costly to it in both dollars and public image. However it eventually plays out, this sorry episode has demonstrated the vulnerability that comes from being a publicly traded auction company.

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