BOSTON May 3 A U.S. court rejected activist
hedge fund manager Daniel Loeb's bid to force auction house
Sotheby's to remove its shareholder rights plan, which
limits the amount of stock he can buy.
Delaware Chancery Court Judge Donald Parsons ruled late on
Friday that he would not overturn Sotheby's so-called poison
pill, which blocks activist investors from buying more than 10
percent of the company's stock while passive investors can buy
The ruling ensures that Sotheby's annual meeting will go
ahead as scheduled on May 6 in New York. It may also be seen as
a blow to activist investors who have increasingly been
prohibited from crossing the 10 percent ownership threshold in
companies where they want to push for change.
Loeb's $14.3 billion hedge fund Third Point, the 270-year
old auction house's biggest investor, this week argued in court
that the poison pill hurt its chances to get its three dissident
shareholder candidates elected to the board.
Loeb, a prominent art collector, has long criticized
Sotheby's for spending too much and not being properly
positioned in the modern art market. Last year he sought to
remove chief executive William Ruprecht, prompting Sotheby's to
put in the shareholder rights plan.
The poison pill prevents Third Point, and other activists,
from buying more than 10 percent of the company even as passive
investors can own as much as 20 percent of it.
"I find that the plaintiffs have not demonstrated that they
have a reasonable probability of success on the merits of their
claims," Parsons wrote. "Therefore, I deny the plaintiff's
motion for a preliminary injunction."
Courts have long upheld shareholder rights plans and lawyers
this week said the case was an important one because it marked
the first time an activist challenged the use of the poison pill
Third Point cited testimony from Sotheby's board members
this week in court that said in emails that Loeb's criticisms
about the company were right and that he would have an easier
time of winning a proxy contest if he owned a bigger stake.
In an email to a fellow board member, Steven Dodge wrote
that Loeb has a "killer set of issues" and that the board was
"too chummy and not doing its job."
Even with a 10 percent ownership stake, Third Point has
mounted a fierce proxy contest and won a fair number of
supporters, including proxy adviser ISS, which recommended that
shareholders vote for two members of the dissidents slate.
Late last month activist investor Mick McGuire, whose
Marcato Capital Management owns 6.6 percent of the company,
threw his weight behind the Third Point slate.
(Reporting by Svea Herbst-Bayliss; editing by Gunna Dickson)