March 26 (Bloomberg) -- Dan Loeb’s Third Point LLC took its fight to add directors to the Sotheby’s board to court, seeking to overturn a poison pill that would be triggered when an activist obtains 10 percent of the auction house’s stock.
Third Point sued Sotheby’s and its board yesterday in Delaware Chancery Court. The hedge-fund firm said the poison pill, normally used as a takeover defense, is being employed to impede a proxy contest and maintain the status quo.
Loeb, whose New York-based hedge-fund firm oversees $14 billion, has been pushing Sotheby’s to increase shareholder value and last month proposed three directors to the board. Sotheby’s this month rejected the proposal, saying the nominees don’t add relevant skills.
The rights plan, as it’s called, isn’t triggered by passive investors until they build up a 20 percent stake. Yet it’s 10 percent for outspoken shareholders, the fund said.
“It is not disputed that the stockholder in question -- Third Point -- has a reputation for being vocal both inside and outside the boardroom with the goal of improving returns to all stockholders,” according to the complaint.
“The terms of the poison pill demonstrate that the board has no genuine concern with a takeover attempt, but are instead intended to thwart Third Point, Sotheby’s largest shareholder, from effectively running a slate of director candidates,” according to the complaint.
As of October, Third Point held 9.3 percent of the New York-based company’s outstanding shares, according to the complaint. That same month, Sotheby’s adopted the poison pill, Third Point said.
Sotheby’s defended the poison pill, saying in an e-mailed statement that it’s “designed to limit the ability of any person or group to seize control of the company without appropriately compensating all Sotheby’s shareholders.”
The auction house said it believes adopting the rights plan was legal. It said it will review the Third Point complaint once it has been served.
Loeb in October called on Sotheby’s Chief Executive Officer William Ruprecht to resign, criticizing the company’s executive compensation, internal operations and “deteriorating” competitive position.
Last month, Loeb, 52, said he would be willing to work with current management as he sought to add directors to the board. Sotheby’s in January said it would pay a $300 million special dividend and that it may sell real estate to hand back more cash to shareholders.
“No one’s holding management accountable to formulating a strategy that will make them competitive with Christie’s,” Loeb said in a February interview. “It’s more about holding them to the task of putting the right people in the right places to getting the job done.”
Sotheby’s said in a Feb. 27 statement that it had offered to appoint Loeb to its board. The company said it was disappointed Loeb had “chosen this path” of nominating three directors.
Sotheby’s rose 21 cents to $43.07 in New York trading yesterday. The shares have climbed 15 percent in the past 12 months.
The case is Third Point LLC v. Ruprecht, CA9469. Delaware Chancery Court (Wilmington).
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