Business

Sotheby’s investors pan Dan Loeb’s board plan

There were no bids for Dan Loeb on Friday.

Sotheby’s stock fell 2.1 percent Friday after the billionaire hedge fund manager and art collector made an impassioned plea to the auction house’s investors to back him in his proxy battle against the company.

Sotheby’s needs “fresh, outsider perspectives” to boost its market share against rival Christie’s, Loeb argued in a six-page letter asking shareholders to vote for three Loeb nominees to the board.

Among his suggestions to fix Sotheby’s — whose shares are down nearly 20 percent this year — are more online sales, a greater number of curated auctions and more financing to procure works for auction.

But his cries appeared to fall on deaf ears, as investors continued to sell the stock, which closed at $42.89, a little more than $1 below Loeb’s average purchase price of $43.92. With dividends, he’s got a paper profit of more than $20 million.

The problem, critics say, is that Sotheby’s is facing tailwinds that three Loeb directors on the Sotheby’s board — if elected — cannot pacify.

“There’s nothing in Loeb’s letter acknowledging the elephant in the room: The company is at a cyclical peak and in the midst of a secular decline,” one hedge fund manager who is short on Sotheby’s said, talking about stocks (in general) being near their peak while shares of the auction house are in decline.

On Thursday, the famed short seller Jim Chanos called the contemporary art market a bubble, offering a chart showing Sotheby’s share price rising in conjunction with prior stock market bubbles — as wealthy buyers bid up the price of art. He recommended shorting Sotheby’s as a hedge.

Investors say one of Sotheby’s biggest problems is cut-throat competition from Christie’s.

Prior efforts to curtail that ended up with a price-fixing scandal and a prison term for former Sotheby’s chairman Alfred Taubman.

“They won’t be doing that again,” said one investor.

Sotheby’s has already taken steps to appease Loeb, who owns 9.6 percent of the shares, and his fellow activist Mick McGuire, a 6.6 percent shareholder who said he will vote for the Loeb board slate at the shareholder’s meeting on May 6.

The auction house already gave shareholders a special one-time dividend of $4.34 per share in February and has told them it plans to sell some real estate. But that wasn’t enough, according to Loeb.

The activist is hoping to repeat his Yahoo! success, where he got three board seats, hired a new CEO and doubled his money before exiting.

But that was an outlier. The average return on all Loeb’s 13D filings that included an activist action, such as letters or proxy battles, is only 8 percent from filing to exit, according to 13DMonitor, which tracks the holdings.

Loeb clearly needs another win. After several gang-buster years, his $14 billion Third Point hedge fund is having a mediocre 2014.

It is only up 3.3 percent through March. That’s better than the S&P 500’s 1.8 percent gain, but it falls far short of peers.