Earlier today, Sotheby's ("the Company") released a letter accusing
Third Point of "taking excerpts out of context" and stating that
"colorful quotes may make headlines"1 but do not reflect the
true state of affairs at the Company. We believe Sotheby's is dead wrong
and we set the record straight in this letter. Our position is fully
supported by the record evidence made public in open court and
shareholders should call the Company if they wish to see it in its
entirety. Third Point encourages shareholders to take the time to read
the publicly available materials and to vote for "Shareholder Slate"
Director nominees Daniel S. Loeb, Harry J. Wilson, and Olivier Reza
instead of the Company's nominees Jessica Bibliowicz, Robert Taubman,
and Daniel Meyer at this year's Annual Meeting.
Dear Fellow Shareholder:
Private communications between Sotheby's Directors revealed publicly
yesterday in Delaware Chancery Court showed unquestionably that the
current Board is dysfunctional, does not put shareholders' interests
before its own, and has been untruthful in its communications with
shareholders during this Proxy Contest.
The emails show that while the Board was issuing press releases publicly
calling Third Point and Daniel Loeb's criticisms "baseless"2, members
of the Sotheby's Board were telling each other that they secretly agreed
with Third Point! As shareholders, we should be outraged that the
Board would spend so much of our money fighting someone who was "right
on the merits" according to at least one Director.
We are confident that any shareholder who reads these emails will agree
that this Board needs the Shareholder Slate. How can any
shareholder condone the hypocrisy and wastefulness on display in these
emails? We urge all shareholders, even those who typically vote with
management, to vote the white card today and send a message that the
Company's owners expect higher standards of conduct than these
embarrassing revelations catalogue.
Fact #1: This Board is Broken
The Sotheby's Directors have tried repeatedly to convince shareholders
that the Board is "independent, active, engaged and focused on further
increasing shareholder value."3 Third Point had grave doubts
about this assertion all along given the current Board's lack of
meaningful skin in the game, its seemingly disengaged attitude towards
the business, and the Company's string of middling results. Yesterday,
our view that this Board is "asleep at the switch" was confirmed by
Sotheby's own former Lead Independent Director Steven Dodge, who wrote:
"I see some combination of a flawed governance process, highly flawed
internal controls and accountability, carelessness, and extraordinarily
bad judgment at work here. Harsh? Yes, but I'm afraid not
off the mark….the evidence is strong that [the] company has a serious
set of expense and comp issues and that the Board and [sic] is too
comfortable, too chummy and not doing its job."4
- Email from Mr. Dodge to Director Dennis Weibling.
Fact #2: Lack of Leadership Is Undermining the
Company's Valuable Human Capital
Sotheby's has publicly insisted to its shareholders that it "has the
right Board and leadership to deliver shareholder value now and into the
future".5 Third Point has said we believe that there is
significant talent at Sotheby's that needs to be harnessed into a
higher-performing organization. It turns out this view is perhaps too
generous, as at least some Directors think Sotheby's is poorly staffed
due to CEO William Ruprecht's leadership:
"[Sotheby's] must hire four to five key drivers to our business,
senior and aggressive businessmen (women) because we don't have
anyone to do the work."
- Email from Mr. Ruprecht to Mr. Dodge, quoting the statement of
Director John Angelo.
Fact #3: Some Directors Believe Christie's is
Sotheby's has told investors time and again that it is outperforming
Christie's, stating "no company is better positioned as wealth creation
leads to additional collectors".6
Third Point, on the other hand, has raised serious concerns that
Christie's is consistently ahead of Sotheby's in key categories such as
Contemporary and key channels like Online Sales. The Shareholder Slate
has stated consistently that this Board's lackadaisical approach to
confronting the Christie's threat renders it unfit to serve shareholders
at this critical inflection point for the Company. Yesterday we learned
that Mr. Angelo shares some of the same concerns:
"[The Company is] at risk of destroying the business and
getting killed in the market in the future if we do not mount a
stronger response to Christie's."
- Email from Mr. Angelo to Mr. Ruprecht.
Fact #4: Directors Recognize a Troubling Lack
of Expense Discipline Among the Current Leadership
Sotheby's insists publicly that the "Board and management remain keenly
focused on expense management and have effectively managed the capital
needs of a growing and cyclical business with prudent fiscal discipline."7
Third Point's position is that the Company spends liberally to garner
headlines extolling large auction sales while earnings per share have
plummeted. We have also stated that we believe the Board has been
derelict in its duty to oversee skyrocketing expenses and control CEO
Ruprecht's profligate spending.
It turns out that none other than Mr. Weibling, the Chair of the Board's
Finance and Audit Committees, shares our grave concerns:
"We have an expense issue. We spend too much on people,
travel, entertainment, client relationships etc…. don't know how
spending was allowed to get that far out of control, with no real
comments by management…. Again, I think Bill [Ruprecht's] strategy was -
revenue and people at whatever the cost. Tough part is, we as a
board didn't know that was his approach so didn't have the opportunity
to debate it."
Fact #5: The Discriminatory Poison Pill Has
Always Been About Protecting Board Seats - Never
About Protecting Shareholders
Third Point has sued Sotheby's over its discriminatory poison pill
because we believe the Board is not genuinely concerned that Third Point
threatens to "control" Sotheby's but rather is concerned that Third
Point's nominees will win the proxy contest and therefore upset the
"collegiality" that Mr. Ruprecht values so highly. Here is an internal
Sotheby's document that shows, in our view, that the poison pill is
- Internal Board deliberation recorded by one of the Company's
investment bankers at Goldman Sachs.
Fact #6: Management Makes Decisions Designed to
Appease Shareholders Solely to Increase Their Chances of Maintaining
Their Board Seats
Third Point believed that the Board's recent capital return and minor
cost savings program was cobbled together to persuade shareholders to
vote with management during the next proxy season, rather than
representing an adoption of best practices or thoughtful benchmarking.
Mr. Ruprecht calculated precisely what payoff it would take to distract
shareholders from the Shareholder Slate's campaign:
"Does a significant dollop of benefit for shareholders, to be scoped,
and announced, in the next six weeks, cut his legs out from under him
"So the decision to make a prudent distribution now allows us the
greatest control over board composition and collegiality going forward…. In
my view, the single most valuable thing the board can do is stay
collaborative and speak with one voice, and control its future."
"So this is about power, and political gamesmanship with
shareholders, not about capital structure."
- Emails from Mr. Ruprecht to CFO Patrick McClymont and Director Robert
Taubman dated September 4, 2013.
The evidence publicly discussed in the Delaware Chancery Court that
Sotheby's argues we have taken "out of context" speaks for itself. Now
is the time for shareholders to tell Mr. Ruprecht and the rest of the
incumbent Board that they deserve better stewards of their capital than
this self-interested, disengaged, and disingenuous group. We are
heartened that certain Board members seem willing to face the Company's
problems and assure shareholders that, despite being few in number, we
will bring a much-needed dose of transparency and best practices to cure
this Board's flawed processes.
If you agree that the time for change at Sotheby's is now, please vote
the white proxy card for Daniel S. Loeb, Harry J. Wilson, and Olivier
Reza. Help us create A Better BID. Please visit www.ValueSothebys.com
for more information about the Shareholder Slate.
We thank you for your continuing support.
Daniel S. LoebThird Point LLC
About Third Point LLC: Third Point LLC is an SEC-registered
investment adviser headquartered in New York, managing over $14 billion
in assets. Founded in 1995, Third Point follows an event-driven approach
to investing globally.
Important Information: Your Vote Is
Important, No Matter How Many Or How Few Shares You Own. If you
have questions about how to vote your shares, or need additional
assistance, please contact the firm assisting us in the solicitation of
INNISFREE M&A INCORPORATED Stockholders Call
Toll-Free: (888) 750-5834 Banks and Brokers May Call
Collect: (212) 750-5833
REMEMBER: We urge you NOT to sign any Green proxy card
sent to you by Sotheby's. If you have already done so, you have every
right to change your vote by signing, dating and returning the enclosed WHITE
proxy card TODAY in the postage-paid envelope provided. If you
hold your shares in Street-name, your custodian may also enable voting
by telephone or by Internet-please follow the simple instructions
provided on your WHITE proxy card.
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