Sotheby’s (BID) has announced that it has adopted a ‘poison pill’ — a shareholder rights plan — to stop any single investor from owning more than 10% of the company.
The auction house didn’t name any names, but earlier this week activist hedge fund manager Dan Loeb, CEO of Third Point Partners, upped his stake in the company to 9.28% and wrote a letter calling for its CEO, William Ruprecht, to step down.
He also said that Sotheby’s was failing to move into the Conteporary and Modern art space and keep up with its main competitor, Christies.
Sotheby’s, for its part, wouldn’t even acknowledge any of Loeb’s specific suggestions in its following press release — “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,” it said.
What this ‘poison pill’ does is make it incredibly expensive for any one person or entity to buy more that 10% or 20% of the stock. They would also have to negotiate with the board.
“This action is designed to protect the interests of all of our shareholders,” Ruprecht said in a press release. “We look forward to continuing to engage in constructive dialogue with our investors regarding our plans for the business, our comprehensive capital allocation and financial review currently underway, and avenues for enhancing and delivering value to our shareholders. Thanks to our exceptional staff, we have truly spectacular property lined up for sale this season and look forward to delivering outstanding results for our clients.”
Ruprecht is in Hong Kong right now on a massive sale that includes 112.8 carat diamond.
Here’s the press release Sotheby’s put out this morning explaining the deal (the important stuff is bolded):
NEW YORK, Oct. 4, 2013 (GLOBE NEWSWIRE) — The Board of Directors of Sotheby’s (BID) today adopted a shareholder rights plan and declared a dividend distribution of one preferred share purchase right on each outstanding share of the Company’s common stock.
The Board adopted the rights plan in response to the recent rapid accumulations of significant portions of Sotheby’s outstanding common stock, including through the use of derivatives. It is intended to protect Sotheby’s and its shareholders from efforts to obtain control that are inconsistent with the best interests of the Company and its shareholders.
The rights plan provides several recognized shareholder protections:
- expires automatically in 12 months unless approved by shareholders (in which case it will expire in three years);
- has an exception for offers made for all shares of the Company that treat all shareholders equally and that result in the bidder owning a majority of the Company’s shares after 100 days;
- guards against coercive tactics to gain control without paying all shareholders a premium for that control; and
- facilitates the ability of all shareholders to realize the full long-term value of their investment in the Company.
Bill Ruprecht, Sotheby’s Chairman and CEO, said: “This action is designed to protect the interests of all of our shareholders. We look forward to continuing to engage in constructive dialogue with our investors regarding our plans for the business, our comprehensive capital allocation and financial review currently underway, and avenues for enhancing and delivering value to our shareholders. Thanks to our exceptional staff, we have truly spectacular property lined up for sale this season and look forward to delivering outstanding results for our clients.”
The rights will be exercisable only if a person or group acquires 10% or, in the case of investors who are eligible to report, and do report, their holdings on Schedule 13G, 20% or more of Sotheby’s common stock. If a shareholder’s beneficial ownership of Sotheby’s common stock as of the time of this announcement of the rights plan and associated dividend declaration is at or above the threshold applicable to it (including through entry into certain derivative positions), that shareholder’s existing ownership percentage would be grandfathered, but the rights would become exercisable if at any time after such announcement the shareholder increases its ownership percentage by 0.001% or more. Each right will entitle shareholders to buy one one-hundredth of a share of a new Series A junior participating preferred stock at an exercise price of $200.
The rights will not prevent a takeover, but should encourage anyone seeking to acquire the Company to negotiate with the Board prior to attempting a takeover. The rights plan also has an exception for offers made for all shares of the Company that treat all shareholders equally and that result in the bidder owning a majority of the Company’s shares after 100 days.
If a person or group acquires 10% or 20% or more, as applicable, of Sotheby’s outstanding common stock, each right will entitle its holder (other than such person or members of such group) to purchase for $200, a number of Sotheby’s common shares having a market value of twice such price. In addition, if Sotheby’s is acquired in a merger or other business combination transaction after a person has acquired in excess of the applicable percentage thresholds the Company’s outstanding common stock, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring company’s common shares having a market value of twice such price. In addition, at any time after a person or group acquires 10% or 20% or more, as applicable, of Sotheby’s outstanding common stock (unless such person or group acquires 50% or more), Sotheby’s board of directors may exchange one share of Sotheby’s common stock for each outstanding right (other than rights owned by such person or group, which would have become void). The acquiring persons will not be entitled to exercise the rights.
Prior to the acquisition by a person or group of beneficial ownership of 10% or 20% or more, as applicable, of the Company’s common stock, the rights are redeemable for $0.01 per right at the option of the Board of Directors.
Certain synthetic interests in securities created by derivative positions — whether or not such interests are considered to constitute beneficial ownership of the underlying common stock for reporting purposes under Regulation 13D of the Securities Exchange Act — are treated as beneficial ownership of the number of shares of the company’s common stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of the company’s stock are directly or indirectly held by counterparties to the derivatives contracts.
The dividend distribution will be made on October 14, 2013, payable to shareholders of record on that date, and is not taxable to shareholders. The Rights will expire in one year on October 3, 2014, unless ratified by the shareholders of the Company by such date, in which case the Rights will instead expire on October 3, 2016. In addition, the Rights automatically expire concurrently with (but no earlier than 100 days after the commencement of such qualifying offer) the purchase of 50% (including shares owned by the offeror) of our outstanding common stock on a fully diluted basis pursuant to a tender or exchange offer for all of the outstanding shares of Company common stock at the same price and for the same consideration, provided that the offeror irrevocably commits to purchase all remaining untendered shares at the same price and the same consideration actually paid pursuant to the offer.
The rights plan and a summary of its terms will be filed with the Securities and Exchange Commission.