Sotheby's under the Wall Street hammer

As activist and art collector Daniel Loeb invests in the auction house, Nikhil Kumar looks at what might be in store for the venerable firm

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The Independent Online

Like many Wall Street tycoons, the hedge fund billionaire Daniel Loeb boasts an enviable art collection. "I've enjoyed art ever since I went to Columbia. I went to the Met [the Metropolitan Museum of Art in New York] and I saw Poussin's Rape of the Sabine Women and it's this incredible, epic, great, great painting," he said during a talk at the Jewish Enrichment Centre in 2009.

According to the Business Insider website, he went on to recall how he "just started buying art as a passion," amassing a collection that is said to include works by Andy Warhol and Mike Kelley. In time, he said, "it ended up being a good investment".

Now, the activist investor will be hoping the same turns out to be true for his stake in Sotheby's, the venerable auction house. Earlier this week, Mr Loeb's Third Point fund disclosed a 5.7 per cent stake in Sotheby's. Besides a number of "going, going, gone" jokes, he immediately set tongues wagging about the changes he might demand at a business whose roots go back to 1744, when the London bookseller Samuel Baker held his first auction, a sale of "several hundred scarce and valuable" books from the library of Sir John Stanley.

In time, it became the first auction house to branch out across the Atlantic, setting up shop in New York in the mid-1950s. Today, the New York-listed Sotheby's has a market worth of $3.2bn (£2bn).

Its chief rival, Christie's, is privately held, owned by the French luxury goods tycoon François Pinault.

Mr Loeb has not yet signalled his intentions for his stake in Sotheby's, but the auction house will be aware that he can be a demanding, dogged and vocal advocate of change. He recently sold most of his shares in the internet business Yahoo, banking hefty profits. The source of those profits? Signs of a turnaround at the struggling Yahoo following changes implemented by Marissa Mayer, the former Google executive who was appointed CEO after Mr Loeb used his stake to campaign for change at the top.

More recently, he has been encouraging the Sony board to spin off its entertainment arm after picking up a stake in the Japanese conglomerate earlier this year. In a change of tack from his campaign at Yahoo, when he didn't shirk from publicly criticising the board (he once suggested that it was living in "an illogical Alice in Wonderland world") he has thus far been the picture of courtesy in dealings with Sony, evidently mindful of the differences in the Japanese and American corporate cultures.

With Sotheby's, all he has said, in a regulatory filing disclosing the 5.7 per cent stake, is that his firm plans to engage the auction house's board in a dialogue. What might they talk about? For one, Sotheby's saw its sales for 2012 decline by about 7 per cent, compared with a rise of 10 per cent for Christie's. The two business are forever in competition to snag the right to the sell the priciest and highest-profile masterpieces.

Investors on Wall Street, meanwhile, appear to be of the view that Sotheby's shares, which are up by about 50 per cent over the past 12 months, are undervalued. Even before Mr Loeb's stake came to light, another activist fund, Mick McGuire's Marcato Capital Management, said it owned 6.6 per cent of the business. Nelson Peltz's Trian Partners also owns a stake in Sotheby's.

Elsewhere, both Sotheby's and Christie's are rushing to cultivate the new rich in emerging markets, particularly China. In its 2012 annual report, Sotheby's said auction and related revenues from Hong Kong had grown to nearly 15 per cent of its total, against about 7 per cent in 2007. Mr Loeb, if he plans to be an investor for the long term, might push the company further in that direction.

But what might he do in the short term? Wall Street's gossips are focusing on the Sotheby's office in New York. Earlier in the summer, reports emerged that the company was thinking of putting one of its own prized assets on the auction block: its glass-fronted headquarters on New York's Upper East Side. A sale of the 490,000 square foot office could free up a significant amount of cash for shareholders. Although no estimates of the building's likely value have been reported, it is bound to be in the hundreds of millions of dollars. As a guide, the 37-story, 820,000 sq ft Sony Building on Madison Avenue was recently sold for $1.1bn.

In a statement last night, responding to Third Point's stake, Sotheby's said that it welcomed investment in the company. "Sotheby's board of directors and management team are committed to building long-lasting value for all of Sotheby's shareholders," it said.

Gone: Biggest recent sales

$44.8m Picasso's Femme assise près d'une fenêtre; London, Feb

$43.8m Barnett Newman's Onement VI; New York, May

$41.6m Cezanne's Les Pommes; New York, May

$37.1m Gerhard Richter's Cathedral Square, Milan; New York, May

$33.8m 17th century vase-technique carpet; New York, June

$30.8m Claude Monet's Le Palais Contarini; London, June