Will a Delaware Court Allow Third Point More Room in Sotheby’s ‘Hedge Fund Hotel?’

Dealbook’s Steven Davidoff explains the dispute over Sotheby’s use of a poison pill in its board fight with Third Point and other funds. Davidoff pithily describes the auction house as a “Hedge Fund Hotel” because of the number of firms that have taken up temporary residence in the stock:

Mr. Loeb’s Third Point is not out to acquire the company and, to avoid running afoul of the Barnes & Noble decision, is claiming that its acquisition of Sotheby’s shares is about being able to run an effective proxy contest and, therefore, the poison pill is not a reasonable response. Third Point stated in its complaint that “the board has no genuine concern with a takeover attempt” and instead is trying to “thwart Third Point, Sotheby’s largest stockholder, from effectively running a slate of director candidates.”

Sotheby’s has stated that it adopted the poison pill “to protect stockholders from coercive or otherwise unfair takeover tactics.” Sotheby’s is simply trying to apply the old law that clearly allows the company to adopt a poison pill, arguing that shareholder activism is a sufficient threat to justify the pill.

Davidoff’s post is also interesting for this strident comment made by art economist David Kusin:

Neither the Sotheby’s board nor its recently active shareholders have a clue what’s at stake. Loeb’s initial public letter last fall and all the subsequent maneuvering since then indicate they haven’t a clue about the strategic tidal wave building to overcome them all. BID’s business model is from another distant era, as are Loeb’s suppositions about what’s wrong. Neither side accounts for the IP and communications / delivery technologies that have changed every other economic marketplace, but not the art sector. The most active buyers and sellers of art have been ill-served in the extreme by what’s masquerading as an efficient market. In less than a decade, BID and the other bulge-bracket art auction houses will have been netflixed, like Blockbuster Video, Studebaker and the New York Central Railroad before them. Their current discussion will prove to have been the ultimate Rabelaisian waste of time.

Poison Pill’s Relevance in the Age of Shareholder Activism (Dealbook/NYTimes)