Beyond the sale of a faked painting, Daniel Loeb may be an auction company’s worst nightmare: An informed heckler.
The 52-year-old billionaire owner of the hedge fund firm Third Point recently won a battle with venerable auction house Sotheby’s to secure a spot for himself and two others on its board of directors, the latest in a string of successful public critiques he's made that began in the 1980s.
But that was only the most recent victory for the activist investor with a history of publicly shaming established companies he's invested in to increase their value. Yahoo, Sony and Morgan Stanley have all been targeted by Third Point.
Loeb’s modus operandi is to write letters that are filed publicly with the U.S. Securities and Exchange Commission, in which he attempts to humiliate CEOs and either pressure them to step down or get them fired. He coined the term “CVD,” or chief value destroyer, while referring to a now-former Potlatch CEO, and he called two great-grandsons of a paper company founder members of the “lucky sperm club.” Others he has called “lazy socialites.”
In his latest spat with Sotheby’s, Loeb’s letter to CEO William F. Ruprecht on Oct. 2, 2013, blamed the auction house’s “lack of leadership and strategic vision at its highest levels” for its “chronically weak operating margins and deteriorating competitive position relative to Christie’s.” He called for Ruprecht to resign, citing a system of perks that “invokes the long-gone era of imperial CEOs,” including a lavish car allowance and reimbursements for fees to “elite country clubs.”
The letter is reminiscent of others in which he has, variously, called for the “imminent involuntary extraction” of the CEO of Warnaco, and called out the “seemingly perpetual failure” of the CEO of Bindview Corp.
Loeb has been investing money since he was a college senior at Columbia University. At the time, in 1983, he later told Bloomberg Markets, he had made $120,000 in profits. He eventually lost the money after investing in a company, Puritan-Bennet, Inc., that made medical ventilators that were associated with several deaths.
Upon graduation, Loeb joined the global private equity firm Warburg Pincus. There, he convinced the company to buy shares of CNW Corp., a Chicago-based railroad company that operated from 1865 to 1995. At the time, the stock rose and the company made $20 million, Loeb said.
Loeb then worked at Island Records, Inc., a record company that made records by U2, The Cranberries and Bob Marley, among other famous artists. Afterward, Loeb segued to various hedge fund firms until he collected enough capital to start his own hedge fund, Third Point, in 1995. He initially wanted to raise $10 million to start his own fund but reportedly had to settle for $3 million from family and friends. Today, his firm manages an estimated $14 billion. Loeb has an estimated worth of $2.2 billion.
In the beginning, he went after “obscure smaller companies,” Vanity Fair said in a recent profile of Loeb. Rather than SEC letters, he was in the habit of posting scathing CEO reviews on investor-related websites under the pseudonym “Mr. Pink.”
Lately, he has made a name for himself hunting bigger fish, including Sony, Yahoo, Morgan Stanley, Apple and Disney, mostly through his well-known SEC letter attacks.
According to a former Third Point employee who spoke with journalist Nicholas Stein in 2007, the value of Loeb’s letter tactic lies in his belief that “if you embarrass a CEO in front of his friends at the club, make him feel like people are talking about him, you can exert change on his company.”
An early example of this is seen in an April 2003 letter to Pendleton Siegel, the chair and CEO of the forest-products company Potlatch, whom he called one of “the worst managers of a public company in America.” In a 2005 letter written to Irik Sevin, the chairman, president and CEO of Star Gas, he called for the executive to “retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.”
In 2012, when Loeb wanted four seats on Yahoo’s board of directors, he wrote another public letter claiming that the company’s new CEO, Scott Thompson, had lied about having a degree in computer science:
“We inquired whether Mr. Thompson had taken a large number of computer science courses, perhaps allowing him to justify to himself that he had ‘earned’ such a degree," Loeb wrote. "Instead, we learned that during Mr. Thompson’s tenure at Stonehill, only one such course was even offered -- Intro to Computer Science. Presumably, Mr. Thompson took that course. If Mr. Thompson embellished his academic credentials we think that it 1) undermines his credibility as a technology expert and 2) reflects poorly on the character of the CEO who has been tasked with leading Yahoo! at this critical juncture. Now more than ever Yahoo! investors need a trustworthy CEO.”
Thompson was later dismissed and Loeb’s firm got three seats on the board.
Loeb’s unique style harks back to his childhood, when he was known for being brash and outspoken. “Dan’s mouth would get him into trouble,” Robert Schwartz, one of Loeb’s former classmates, told Bloomberg Markets.