Sotheby's gives Loeb board seats, avoiding showdown

New York (AFP) - Sotheby's agreed Monday to appoint hedge fund activist Dan Loeb and two allies to its board, averting a shareholder vote over the direction of the prestigious fine art auctioneer.

A day before a contentious Loeb-pushed vote could have upended company management, Sotheby's bowed to pressure and agreed to appoint Loeb along with restructuring expert Harry Wilson and Olivier Reza, a renowned jeweler and former banker, to the board.

The deal will take the size of its board from 12 to 15. Loeb, head of the hedge fund Third Point, meanwhile will be allowed to build his stake to 15 percent from just below 10 percent, having been blocked earlier by a "poison pill" defense the board had set up to fend off his push for more influence in the company.

The settlement came only days after a hearing in a Delaware court at which Third Point released emails that showed some Sotheby's board members agreed with some of his criticisms of the company's direction.

While Delaware judge Donald Parsons late Friday rejected a Third Point request to delay Tuesday's meeting, his opinion showed Sotheby's officials were girding for a tough vote after Blackrock, another major shareholder, told Sotheby's brass that Loeb would win.

"We welcome our newest directors to the board and look forward to working with them, confident that we share the common goal of delivering the greatest value to Sotheby's clients and shareholders," said chief executive Bill Ruprecht.

Loeb said he was "delighted" and agreed to end his legal challenge to the board and to the poison pill defense, which will also be terminated on Tuesday.

A major art collector and one of Wall Street's most aggressive investors, Loeb pledged to work together with Sotheby's "to unlock shareholder value by pursuing a strategy of sound capital allocation and growth while respecting the best of the company's rich history, tradition and culture."

Despite the sunny comments from both sides, the deal follows months of often acrimonious sparring.

Loeb, who is known for his poison-pill letters to chief executives, released a caustic epistle in October, accusing the board of greenlighting bloated executive pay packages and fumbling opportunities in a fast-changing art world that left it lagging rival Christie's.

He also called for Ruprecht's ouster, likening the company to "an old master painting in desperate need of restoration."

Ruprecht, for his part, referred to Loeb as an egotistical "scumbag" who was driven by the need for "power and political gamesmanship," according to Sotheby's documents cited by Delaware judge Parsons.

Loeb's pressure earlier had led the company in January to return more cash to shareholders, cut spending and reorganize its divisions.

But, even after those gains, he kept pushing to score the crucial seats on the board.

Despite the nasty tenor of earlier exchanges, governance experts said management is usually able to work with activists once they are on the board.

"The bottom line is you have to work together," said Charles Elson, director of a corporate governance center at the University of Delaware. "The nastier the fight, the tougher it is to do it, but that doesn't mean they won't."

Key issues ahead include whether Sotheby's should take on debt to return more cash to shareholders, sell its New York City headquarters, and split the chief executive and chairman's role.

Loeb "will have a bully-pulpit if he can convince the others" on the board to back him, Elson said.

Sotheby's shares rose 3.3 percent to $44.80 in Monday trade.