Business

Loeb secures strong backer in Sotheby’s board battle

Thanks to his impressive art collection, billionaire hedge-fund manager Dan Loeb has won a powerful ally in his rancorous battle with Sotheby’s.

Loeb, who owns 9.6 percent of Sotheby’s, is waging a proxy contest for three seats on the auction house’s 12-member board.

Institutional Shareholder Services, which can influence a huge chunk of shareholders, boosted his campaign on Thursday by endorsing two members of Loeb’s slate — Loeb and Olivier Reza, a former investment banker who runs a luxury jewelry business.

Later in the day, Sotheby’s board won the backing of rival proxy firm Glass Lewis, but ISS is considered the more influential of the two.

In making its recommendation, ISS said that Loeb is an “avid art collector,” as well as a financier. His collection of mostly postwar and contemporary works is said to include Andy Warhol and Cindy Sherman.

ISS made a similar case for backing Reza, noting he is a “frequent client of firms like Sotheby’s, consigning and buying for Reza Gem.”

It nixed a third candidate, Harry Wilson, a restructuring expert who made a failed bid to be New York comptroller, citing his lack of art-world experience.

ISS criticized Sotheby’s for lack of expense control and said that it may “be missing still more by not failing to take a more strategic review of how it organizes and conducts its business.”

“It appears that introducing some change into the boardroom is warranted,” ISS concluded.

That was enough to send the stock up 5 percent for the day to close at $42.74.

On Tuesday, Sotheby’s pre-released first-quarter earnings showing a 34 percent increase in sales of impressionist and contemporary art drove net auction sales in the first quarter up 40 percent from the prior year to $730 million.

“Now is not the time to diverge from Sotheby’s leadership and its strategic plan,” the auction house said in response to the ISS recommendation.

Hedge funds, including Loeb’s Third Point, own about 25 percent of Sotheby’s shares.

But Loeb is angling to buy more. He has asked a Delaware Chancery Court to strike down a poison pill Sotheby’s enacted last fall that is designed to limit an activist shareholder’s holdings to 10 percent, while passive shareholders can go up to 20 percent.

Loeb has argued that the dual-class pill was designed specifically to thwart him.

Although Delaware courts typically favor corporations, the judge’s comments regarding a tilted playing field and rulings have encouraged Third Point, sources said.

Judge Donald Parsons has pushed up a date for the hearing because of Sotheby’s impending shareholders’ meeting.

Arguments will be heard Tuesday, and the court could rule within days.

If the judge orders a trial, that would delay Sotheby’s May 6 shareholders meeting, where the votes will be counted.