Activist investor Daniel Loeb's Third Point LLC has raised its stake in Sotheby's (BID.N) and called for the resignation of the auctioneer's chief executive and chairman on concerns about the company's leadership and strategic direction.
Loeb's roughly $13 billion fund, now Sotheby's largest shareholder, with a 9.3 percent stake, said it would seek to replace current CEO William Ruprecht once Loeb gains a seat on the company's board, according to a letter disclosed in a regulatory filing Wednesday.
"We are troubled by the company's chronically weak operating margins and deteriorating competitive position relative to Christie's, as evidenced by each of the contemporary and modern art evening sales over the last several years," Third Point said in the letter.
"We have concluded that Sotheby's malaise is a result of a lack of leadership and strategic vision at its highest levels."
Loeb called for the positions of CEO and chairman to be separated upon the departure of Ruprecht, who holds both positions.
Third Point had raised its stake in Sotheby's from the 5.7 percent it owned as of August 15.
In a written statement Sotheby's said it is making ongoing efforts to improve the company's balance sheet, deliver shareholder value and improve the cost of capital, including a "comprehensive capital allocation review" that is already underway.
Last month Sotheby's said it would review its capital allocation strategy, leaving the door open to raising its dividend and taking on debt, after activists Loeb, Nelson Peltz and Mick McGuire revealed big stakes in the company.
"Today, rather than debating incendiary and baseless comments, we are focused on serving our clients' needs during this critical autumn sales season," the statement said. "We will comment on the communication from Third Point at the appropriate time."
Sotheby's shares were up about 0.8 percent at $50.10 in midday trading on the New York Stock Exchange. The stock has risen almost 45 percent since the beginning of the year.
"Sotheby's trades on the auctions and supply as well as what's going on in the art market," said Kristine Koerber, an analyst at Discern. "They have made some management changes. The stock has continued to migrate upward and it could be due to the strong auction results recently or the activists' involvement."
Koerber, who has covered Sotheby's for several years, said she had read the letter from Loeb and doesn't agree with everything stated in it. She declined to comment further.
On Wednesday Loeb likened the 269-year-old auction house to "an old master painting in desperate need of restoration." He wants auctions, private and internet sales reinvigorated or revamped, he said, and for the company to expand its global footprint and "exploit the Sotheby's brand through adjacent businesses."
Loeb also criticized Sotheby's management for excessive spending and waste at the expense of shareholders, citing an "extravagant lunch and dinner at a famous 'farm-to-table' New York-area restaurant where Sotheby's senior management feasted on organic delicacies."
Third Point did not have any further comment on the letter.
Loeb is one of the hedge fund industry's most famous managers, known as much for his solid returns as his acerbic and colorful letters to corporate boards. In recent times Loeb has focused his activist efforts on Yahoo Inc (YHOO.O) and Sony Corp (6758.T).
(Reporting by Katya Wachtel, Maria Ajit Thomas in Bangalore; Editing by Joyjeet Das and Andrew Hay)