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Vanity Fair Profiles Hedge Fund Activist Dan Loeb

October 30, 2013 | About:
Canadian Value

Canadian Value

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Billionaire hedge-fund manager Dan Loeb calls himself an “activist investor,” but even in the rough-and-tumble financial world, his tactics—nasty, personal attacks on C.E.O.’s and colleagues—are considered extreme. After nearly losing his Third Point fund, in 2008, Loeb has come roaring back, hunting such big game as Yahoo, Sony, Morgan Stanley, and Sotheby’s. From Wall Street to Hollywood, everyone is crying foul, but as William D. Cohan reports, Loeb’s ultimate weapon may be that he doesn’t give a damn.

Once again, in October, Dan Loeb was lobbing grenades. This time his target was Sotheby’s, the international auction house, founded in 1744, that, along with chief rival Christie’s, owns the high-end business of reselling the art, real estate, jewelry, furniture, and other knickknacks of the wealthy. Loeb, the 51-year-old founder and principal owner of the hedge fund Third Point L.L.C., is famous, or rather infamous, for such bomb throwing. Packaging them in the form of letters to corporate C.E.O.’s (and sometimes to his hedge-fund colleagues), Loeb excoriates his targets publicly, not only for their professional performance but also often for their personal behavior. The idea is to humiliate the C.E.O.’s, causing them to quit or to get fired, so Loeb can unleash his strategies for “unlocking shareholder value,” as they say in the hedge-fund world. Other hedge-funders send such letters, but most agree that Loeb’s are the nastiest and most florid.

After Third Point had become the company’s largest shareholder, Loeb sent his Sotheby’s letter on October 2 to William F. Ruprecht, the widely respected chairman and chief executive officer, who has been at the auction house for 33 years. Arguing that Sotheby’s suffered from “a lack of leadership and strategic vision at its highest levels,” Loeb then blasted Ruprecht for his 2012 compensation of $6.3 million, as well as any number of perks—memberships in “elite country clubs,” car allowances, and tax-preparation services—that invoked “the long-gone era of imperial CEOs.” He also relayed the “story” of an “extravagant lunch and dinner” at Blue Hill restaurant, in Manhattan, where, he said, Sotheby’s management “feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars.” Loeb demanded Ruprecht’s resignation and wrote that he would like to join the board “immediately” to begin a search for a new C.E.O. Incredibly, he wrote that he had already identified two internal candidates who could succeed Ruprecht and had begun “informal discussions” with outside candidates as well.

In response, Sotheby’s cited Loeb’s “incendiary and baseless comments.” An unnamed source, speaking to The Wall Street Journal, said Loeb had exaggerated the size of the restaurant tab, which had covered 50 of the firm’s top producers. The company also adopted a so-called “poison pill,” forcing anyone who acquires 10 percent or more of the company’s stock to negotiate with the board of directors to buy the company—a path the activist Loeb is unlikely to pursue. (Ruprecht declined a request for an interview.)

For most of his career Loeb has gone after obscure smaller companies, but the $14 billion war chest he has assembled of his and other people’s money in the last few years has inspired him to pursue bigger game—among them Sony, Yahoo, Morgan Stanley, Apple, Disney—and has attracted unwanted attention to his scorched-earth tactics. Last August, George Clooney, one of Hollywood’s smartest and most genial figures, went ballistic on Loeb, who had bought more than a billion dollars’ worth of Sony stock, and then followed it up with a pair of letters to Sony C.E.O. Kazuo Hirai, claiming that the company’s entertainment division lacked the “discipline and accountability that exist at many of its competitors.” Loeb concluded by assuring Hirai that he “would gladly accept a seat on Sony’s Board of Directors.”

Clooney, after pointing out that he has no particular love for Hollywood executives, rallied to their defense. “I’ve been reading a lot about Daniel Loeb, a hedge fund guy who describes himself as an activist but who knows nothing about our business, and he is looking to take scalps at Sony,” Clooney vented in August to the entertainment-news Web site Deadline Hollywood. “It makes me crazy A guy from a hedge fund entity is the single least qualified person to be making these kinds of judgments, and he is dangerous to our industry What he’s doing is scaring studios and pushing them to make decisions from a place of fear To have this guy portraying it that Sony management is the bad stepchild and doesn’t know what it is doing and he’s going to fix it? That is like Walmart saying, let me fix your town, putting in their store, strangling all the small shops and getting everyone who worked in them to work for minimum wage with no health insurance.”

Loeb followed his Sony investment with a relatively small $115 million stake in Disney (which has a market value of around $117 billion). What he hoped to accomplish with such a small stake is a bit of a head-scratcher. According to an insider, “Hollywood is used to seeing these people [like Loeb] come in, make a buck, and leave. In that sense, everybody is just kind of rolling [their] eyes. But [Loeb’s targeting of Sony] is unfair because Sony has been one of the most stable and successful studios.”

Clooney’s broadside was all the more surprising in that, at first glance, you’d think that Loeb would be just Hollywood’s kind of hedge-fund guy. With the laid-back affect of the California surfer dude that he once was, he’s compact, athletic, and rakishly handsome, with close-cropped brown hair and a wry smile. He made skateboards for himself and his friends when he was 12, worked for Island Records after graduating from college, and hung out in New York with rapper Fab 5 Freddy during the mid-80s heyday ofBright Lights, Big City. Looking much younger than his age, thanks to some seriously healthy living, he for many years practiced Ashtanga, the rigorous, contortionist form of yoga favored by 20-year-old actresses and ballerinas, and then moved on to compete in triathlons and marathons, where he is a middle-of-the-pack guy but gets big points for participating.

Works by such major contemporary artists as Jean-Michel Basquiat, Richard Prince, Cindy Sherman, Andy Warhol, and Mike Kelley line his spectacular homes and his swanky Lever House office, on Park Avenue. He thinks nothing of hopping on his Gulfstream IV (recently upgraded to a newer model, friends say) to jet to the Mentawai Islands, in Indonesia, to go surfing. He studied Torah for six years with Rabbi Heshy Blumstein, who presided over his July 4, 2004, marriage to Margaret Munzer, then a yoga instructor. (They have three children.) He even wears custom-made Tom Ford suits.

Some people believe that Loeb’s yoga practice and Torah studies are just an elaborate means of atonement. “I’ve heard it said that yoga is Dan’s form of paying penance for what he does while outside the home, whether it be the office or elsewhere,” says Robert Chapman Jr., a hedge-fund manager in California. “It’s like his way of self-purging.” Chapman and Loeb were once friends who occasionally invested together on deals.

Adds a competitor who knows him well, “I think Loeb has got an enormous ego. I think he’s got a bit of a Napoleonic thing. And I think he’s a very calculating, Machiavellian guy What happens to some people when they make a ton of money is they get this feeling of invulnerability, and I can do anything, say anything, behave any way I want, and I can get away with it.”

A Wall Streeter who has known Loeb since his early days in New York describes how Loeb climbed to the pinnacle of hedge-fund success: He started out “a little bit like J.P.—John Paulson [founder and president of the hedge fund Paulson & Co.]. He was doing O.K. No one took him terribly seriously. And then he kind of figured out his niche. We all know what his niche is: He is just long and loud. He took a position and then started screaming and trying to force some change. He was smart to occupy a place that was really left vacant: All the private-equity funds and the banks had to get out of [doing] hostile deals, and it was left to the guys who didn’t give a crap, knew how to do it, and had nothing that they were compromising or putting in jeopardy by taking on those powers. Carl Icahn didn’t give a fuck. Dan Loeb didn’t give a fuck. I don’t think anyone’s ever said Dan’s a really, really brilliant guy, but this is what the hedge-fund world allows you to be if you’re massively ambitious and you’re kind of really, really, really focused. You’ll probably get there.”

Some people think Loeb’s hostile behavior may derive from feelings of insecurity. “Given Dan’s extraordinary success, his behavior can be extraordinarily odd, and coming from me that says something,” says Chapman. “If I had to guess, he sees himself as a phenomenal filterer of other people’s investment ideas, and maybe that’s the source of a behavior normally attendant on someone hopelessly insecure.”

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