Third Point vs. Sotheby’s Proxy Fight

Citing alleged problems with Sotheby’s business strategy and governance, Daniel Loeb and Third Point LLC launched a proxy fight to obtain three seats on Sotheby’s board of directors. Third Point sought to purchase additional shares of Sotheby’s in the contest but was restricted from doing so by a low-threshold poison pill adopted by Sotheby’s board that discriminated between active and passive investors. Third Point then sought a preliminary injunction from the Delaware Chancery Court seeking to postpone the shareholder vote until a trial could be held on the validity of the poison pill.

Compass Lexecon was retained by William Lafferty of Morris, Nichols, Arsht & Tunnell LLP, Tariq Mundiya of Willkie, Farr & Gallagher LLP, and Tibor Nagy of Dontzin Nagy & Fleissig LLP on behalf of their client, Third Point, to analyze the adverse impact of the poison pill on the likelihood Third Point would succeed in its proxy contest (and thus, suffer irreparable harm) as well as the likely impact of Third Point’s proxy contest on Sotheby’s shareholders. Compass Lexecon’s President Daniel R. Fischel submitted two expert reports in the case and testified by deposition.

The Court denied the preliminary injunction on the merits, but relied heavily on Professor Fischel’s empirical analysis of data on proxy vote outcomes in determining that the poison pill would cause irreparable harm to Third Point. After the preliminary injunction hearing, Sotheby’s settled with Third Point, with Third Point receiving essentially its entire demand, including three seats on Sotheby’s board, an allowance to purchase more than 50% more shares than it previously owned, and reimbursement of $10 million for its expenses. Widespread press coverage attributed the favorable settlement to evidence brought out by Third Point’s counsel at the hearing demonstrating that a number of Sotheby’s directors shared Loeb’s concerns about Sotheby’s business strategy and governance. The end result was what The Wall Street Journal described as “technically a legal loss” with Sotheby’s giving “Third Point most of what it had sought.” Professor Fischel was supported by a team from the Compass Lexecon Chicago office including David Ross, Todd D. Kendall, Greg Pelnar, Jonathan Polonsky, Anne Marie Yale, and David Strahlberg.