Delaware court upholds Sotheby’s poison-pill against hedge fund
03 May 2014
A Delaware state court judge has blocked a bid by Daniel S Loeb, founder and chief executive of Third Point LLC, a New York-based hedge fund with a portfolio worth $14 billion, to overturn a crucial corporate defence at auction house Sotheby's.
In a ruling issued last evening, Donald F Parsons, a vice chancellor of Delaware's Court of Chancery, did not overturn a so-called poison pill plan that limited Loeb's stake to not over 10 per cent of Sotheby's shares, while allowing passive investors to hold as much as 20 per cent.
The company's annual shareholder meeting is slated for 6 May, where shareholders would cast their vote in what could be a defining moment in the company's 270-year history.
Also it might pave the way for companies to enact tougher defences against outspoken activist investors pushing for change.
Loeb and his firm, Third Point, had nominated three director candidates, including himself, to take on the current board at Sotheby's.
Sotheby's poison pill, formally called a shareholder rights plan, had sparked debate within the corporate governance community. Though defences of the kind had been used by companies for decades, the auction house's version specifically discriminated against activist-investors, a move that was unfair, alleged Third Point.
However, in his ruling Parsons wrote that Loeb's primary argument - that the poison pill unfairly impeded his ability to wage his campaign - was flawed.
The 270-year-old auction house and Loeb has traded blows over the past several months, fighting for votes in a proxy battle that would see a crucial face-off on 6 May.
Loeb is gunning for three board seats at the auction house citing his displeasure with the company's financial strategy and its declining importance in the modern art market. The activist investor has also faulted CEO and chairman, William Ruprecht, and his board over lavish perks such as elite country club memberships.
Loeb's Third Point LLC holds a 9.6-per cent stake in Sotheby's.
Meanwhile, the ''poison pill'' had been turning out to be the primary bone of contention in the whole affair and in March, Loeb filed a lawsuit challenging its legality.
Commentators say, apart from the fight, the lawsuit might turn out to be the most significant part about this entire ordeal as it could have far reaching implications.
''Poison pills'' developed in the 80's were intended to thwart hostile takeovers by investors bent on dismembering companies, stripping and selling off their assets for profits.
