Daniel Loeb, 51, CEO of New York hedge fund Third Point LLC, which holds 9.3 percent of the company’s outstanding shares, sent the letter to Ruprecht today, complaining about lagging performance, a corporate malaise and Ruprecht’s excessively high pay.
Loeb points to a “deteriorating competitive position relative to Christie’s,” the auction house’s main competitor. While Sotheby’s claims predatory behavior on the part of Christie’s to get high-ticket items for sale, Loeb accuses Sotheby’s of giving away the store. Sotheby’s has, according to Loeb, “most aggressively competed on margin, often by rebating all of the seller’s commission and, in certain instances, much of the buyer’s premium to consignors of contested works.”
The letter accuses Ruprecht of insufficiently appreciating the growth in market importance of modern and contemporary art in recent years. Furthermore, the letter accuses Sotheby’s of falling behind Christie’s in newer markets like China and the Middle East, as well as in private sales.
Board members at Sotheby’s hold very little stock in the company, Loeb claims, with Ruprecht himself in possession of just 152,683 shares, or 0.22 percent interest, though he was paid $6.3 million in salary and awards in 2012, according to the letter.
The compensation package includes a car allowance and membership fees and dues to elite country clubs, the letter adds.
“In the course of our investigation into the Company’s business practices, we came across numerous anecdotes of waste,” Loeb goes on. “Typical of the egregious examples was a story we heard of a recent offsite meeting consisting of an extravagant lunch and dinner at a famous ‘farm-to-table’ New York area restaurant where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars.”
Sotheby’s is not Loeb’s first target. He has previously taken aim, with similar publicly filed letters, at the leadership of companies he’s involved with, from gourmet appliance company Salton, Inc., to home heating oil distributor Star Gas Partners and even Sony Pictures Entertainment.
In a statement sent via e-mail, Sotheby’s replied:
“Sotheby’s actions as a leader in the global art business have been producing superior results—including a share price increase exceeding the Standard & Poor’s Midcap index over the one, five and ten year periods. The comprehensive capital allocation review already underway demonstrates the Company’s ongoing efforts to optimize the balance sheet, improve the cost of capital and manage financial policies in a way that supports Sotheby’s strategy and delivers outstanding value to shareholders.
“Today, rather than debating incendiary and baseless comments, we are focused on serving our clients’ needs during this critical autumn sales season, including this week in Hong Kong, where our offerings are 77% higher than the same series last year—the highest estimate of any Sotheby’s sale in Asia.
“We will comment on the communication from Third Point at the appropriate time.”