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In his famous treatise The Art of War, one of Sun Tzu’s guiding principles is to only fight those battles that you really do need to engage in. Winston Churchill put it a slightly different way, when he said “jaw” is better than “war” – when possible that is.
Third Point has been waging a protracted and bitter proxy battle against Sotheby’s, and against its embattled Chairman and CEO Bill Ruprecht, in the last several months, one that would have come to a head one way or another at the company’s Annual General Meeting tomorrow with a vote by the company’s shareholders.
Daniel Loeb had been demanding corporate change, plenty of it, but also had put up three nominees of his own, including himself, for election to the Sotheby’s Board of Directors.
Reflecting the somewhat schizophrenic nature of the response of a number of institutional investors to this raiding party, one corporate governance advisor, Institutional Investor Services, had come out in favour of electing Loeb’s Board nominees while a second one, equally prestigious, Glass Lewis & Co. had come out favouring the Sotheby’s slate on its own.
Obviously this presented risks for both sides in the argument, with neither side particularly wanting to lose face and see its proposals get shot down. Hence today’s announcement, which has led to a very Solomonic compromise in which the Sotheby’s board will be expanded to include both the Sotheby’s proposed slate of Directors and the three Third Point nominees as well, in what will become an enlarged Board of Directors.
Accordingly, Daniel Loeb, Olivier Reza and Harry Wilson will now be added to join Sotheby’s proposed own new and current Directors on the Board. The new Board will thus have 15 members, of whom a total of 13 will be considered as independent. In addition, the Third Point shareholder stake will be capped at a maximum of 15% under the agreement, Sotheby’s will now also disband its Poison Pill and Third Point will immediately discontinue its proxy battle.
To achieve all this, the Annual General Meeting will convene tomorrow, Tuesday 6 May 2014 as planned, and will then be immediately adjourned until later in the month of May to allow for updated proxy solicitation materials to be distributed to Sotheby’s shareholders so these new arrangement may be voted upon.
Bill Ruprecht, Chairman, President and Chief Executive Officer of Sotheby’s said, ”We welcome our newest Directors to the Board and look forward to working with them, confident that we share the common goal of delivering the greatest value to Sotheby’s clients and shareholders, ” adding “This agreement ensures that our focus is on the business and that we will benefit from five fresh voices and viewpoints.”
Third Point CEO Daniel Loeb stated, “Harry, Olivier and I are delighted to join the Sotheby’s Board. As of today we see ourselves not as Third Point nominees but as Sotheby’s Directors, and we expect to work collaboratively with our fellow board members to enhance long-term value on behalf of all shareholders. We are confident this Board will benefit from the perspective of aligned shareholder voices. We are committed to working closely with Sotheby’s leadership team to unlock shareholder value by pursuing a strategy of sound capital allocation and growth while respecting the best of the Company’s rich history, tradition and culture.”
In connection with these appointments, Third Point has agreed to what are customary standstill and voting commitments in such circumstances, and terminated its proxy contest. In addition, Sotheby’s itself will accelerate the termination of its one-year shareholder rights plan concurrent with the 2014 Annual Meeting and Third Point, whose ownership in Sotheby’s will be capped at 15% under the agreement, has withdrawn its litigation with respect to the rights plan.
The complete agreement with Third Point will be included as an exhibit to a Current Report on Form 8-K, which will be filed with the Securities and Exchange Commission.
This is a victory for common sense, as Daniel Loeb almost certainly has plenty of sensible advice to offer the company. On the other hand Bill Ruprecht and his team are far from dummies either even if they have appeared somnolent at times to some outside observers. Together therefore they can make for a winning combination even if they are perhaps not natural best-buddies together.
Of course how long they can live together in tandem will remain to be seen, and will depend on results achieved. If the business is slow to respond then demands for more aggressive actions could well come back ot the surface again down the road.