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Dan Loeb Loses For Winning For Losing

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Dan Loeb is probably feeling pretty good about himself right now. He made $700 million last year, a year in which his hedge funds were up 25%. And while his Dow foray hasn’t panned out quite yet, he managed to snag victory—total, unconditional, here’s a $10 million check for your troubles victory—from the jaws of (Delaware Chancery Court) defeat.

So the $5.7 million or so Sotheby’s spent winning that case only to completely capitulate three days later didn’t do it any good. But it certainly looks likely to not be so great for newly-minted Sotheby’s directors and other such activist investors.

On Friday, Vice Chancellor Donald Parsons of the Delaware Court of Chancery ruled that auction house Sotheby's acted reasonably when it adopted, and later maintained, a poison pill aimed squarely at activist hedge funds circling the company's stock last fall. The plan limited these investors, including Daniel Loeb's Third Point LLC, to under a 10% stake but let passive investors—thought to be friendlier to management—buy twice as much.

Mr. Parsons found credible the concerns of Sotheby's board that Mr. Loeb, who was seeking board seats, in the absence of a pill could gain "effective control" over the company without having to pay a premium. Mr. Loeb and Sotheby's announced a settlement Monday….

"It's a Good Housekeeping seal of approval," said lawyer Gardner Davis. "If I'm the general counsel of a public company and I'm worried about an activist investor—and these days, everybody is worried—this is…a nice tool to have on the shelf."

Court Ruling Bolsters New Type of ‘Poison Pill’ [WSJ]


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