Loeb Steps Up Pressure on Sotheby’s Board

The activist investor Daniel S. Loeb fired his latest salvo at Sotheby’s on Friday, calling on shareholders to overthrow the auction house’s “lackadaisical” board.

In a letter to shareholders just a month before Sotheby’s’ annual meeting, Mr. Loeb’s hedge fund, Third Point, also appealed to shareholders to vote for its proposal for the company.

Accusing the board of lacking any “skin in the game,” Mr. Loeb told shareholders that a “dysfunctional corporate culture” had resulted in a company that is poorly managed and focused only on short-term goals.

Shares in Sotheby’s dipped 2.4 percent, to $42.78, after the letter was released.

It is the latest attack by Mr. Loeb in a battle that has pitted the billionaire hedge fund manager against the oldest publicly listed company on the New York Stock Exchange.

Last week, Mr. Loeb sued Sotheby’s to remove a poison pill that the company put in place in an effort to prevent him and any other activist investor from buying more than 10 percent of the company’s stock. Third Point called the move an “improper attempt by the directors of Sotheby’s to entrench themselves in office,” according to the complaint. Third Point has a 9.6 percent stake in Sotheby’s.

Mr. Loeb went further on Friday, accusing the board of “pulling up the drawbridge” by using a “legal relic” that revealed “that this board’s paramount interest is in ensuring its members’ status.”

Earlier this year, Mr. Loeb mounted a proxy contest against the company and called for three seats on the board. In response, the company rejected those nominees â€" which included Mr. Loeb â€" and instead announced its own candidates.

In his letter on Friday, Mr. Loeb told shareholders that they had been misled, adding that the company’s assertion that 2013 was a record year for the auction house was not entirely true. Citing a common metric for investors, Mr. Loeb said shareholders’ earnings per share were 40 percent lower in 2013 than they were in 2007, the last record year for Sotheby’s.

Under pressure from Mr. Loeb and another activist investor, Mick McGuire of Marcato Capital, Sotheby’s announced a financial review in January, promising to return $450 million to shareholders through a dividend and share buyback. It also promised to make changes to its capital cost structure, estimating $22 million in savings.

In response, Mr. Loeb said this overhaul “barely scratched the surface” and lashed back that the cost cuts were the “lowest hanging fruit available.”

In an emailed statement in response to Mr. Loeb’s letter on Friday, Sotheby’s said its board was “independent, active, engaged and focused on further increasing shareholder value.”

“In contrast,” the statement said, “we believe Mr. Loeb has made no case that change is warranted at Sotheby’s, particularly given the company’s strong results and record of value creation.”