Sotheby's Allows Activist On Board, Settles Proxy Battle

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By Che Odom  

May 5 --After a victory May 2 in the Delaware Court of Chancery, Sotheby's agreed to allow Third Point LLC CEO Dan Loeb and two of its other nominees to serve on the auction house's board.

“It is better for them to come together, create a larger conversation about what's the endgame for the company,” John Chachas, managing partner at Methuselah Advisors, told Bloomberg BNA May 5. “In the end, you have three directors. You don't have absolute control over this board” by the hedge fund.

Third Point, Sotheby's largest shareholder, sued Sotheby's in March after it adopted a poison pill provision earlier this year. The hedge fund asked the court to enjoin the annual shareholders meeting scheduled for May 6.

Vice Chancellor Donald Parsons denied the motion for a preliminary injunction May 2, ruling that Third Point failed to demonstrate that it had a “reasonable probability of success on the merits” of its claims (Third Point LLC v. Ruprecht , 2014 BL 124025, Del. Ch., C.A. No. 9469-VCP, 5/2/14).

Nevertheless, Sotheby's agreed to expand its board to include the Third Point nominees, creating a 15-member board. Also, Third Point, which owns 9.6 percent of Sotheby's common stock, will be able to increase its share to 15 percent.

The poison pill provision caps activist investment at 10 percent, while passive investors may buy up to 20 percent of common stock.

Injunction Denied

In its complaint against Sotheby's, filed March 25, Third Point said that the question it posed had “never before” been decided by a Delaware court--whether a board of directors can adopt a poison pill with a 10 percent trigger in response to a shareholder “who does not threaten a takeover of the company, but simply seeks minority representation on the board.”

Third Point said Sotheby's directors breached their fiduciary duties by refusing to provide the hedge fund with a waiver from the terms of the shareholder rights plan in an attempt to obtain an “impermissible advantage in an ongoing proxy contest” with Third Point, the court said.

Ruling that Third Point had failed to meet the burden of proof for its motion to enjoin the annual meeting, the court held that, under the heightened review standard from Unocal Corp. v. Mesa Petroleum Co., the board had identified legitimate and legally cognizable threats to the company's corporate policy and effectiveness and that the board's actions were not preclusive of a proxy contest and were proportionate responses to the threats posed.


To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Jesse Travis at

Sotheby's news release is available at

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