It wouldn’t be wrong to say that when Daniel Loeb buys a stake in a company, he is actually ‘pointing a gun’ towards the company’s management. In his entire career of being a hedge fund manager at Third Point, Loeb has done exactly that. Bought stakes and written letters to the management voicing his displeasure over how they are ruining shareholder value. So what was coming next, shouldn’t have been a surprise to Sothebys (NYSE:BID) when Loeb purchased a stake in the auction house last year, but the company still chose to fight Loeb by instituting a ‘poison pill’. Even though Loeb lost his lawsuit against Sothebys (NYSE:BID), the company still had to reach an agreement with Loeb and foot the $24.3 million bill for its litigation and proxy fight, which was revealed when the company declared its results recently.
Olivia Sterns reported on the loss suffered by Sothebys (NYSE:BID) in its proxy battle with Daniel Loeb on Bloomberg.
“Basically, ever since he has got involved, Sothebys (NYSE:BID)’s share price has been falling so its kind of cold comfort to him that he is actually getting some of his changes to occur. As we know, he has actually got himself on the board along with the two people that he wanted on the board, but the earnings this morning are soft, one of the reasons is because the proxy battle with Loeb has actually costed more in terms of legal costs [...],” Sterns said.
Sterns attributed the other reason for Sothebys (NYSE:BID) posting a disappointing second quarter results to the shrinking margins of the company. Sterns compared Sothebys (NYSE:BID) to being the opposite of other companies in the S&P 500 in the sense that even though its sales are growing, its margins are falling. Sterns also explained the reason behind the decreasing margins, which is that the company is not making any real money by auctioning items over $20 million as it was facing stiff competition there.