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Hedge funds drawn to Sotheby's in third quarter

Katya Wachtel and Svea Herbst-Bayliss
Thursday, 14 Nov 2013 | 4:33 PM ET

NEW YORK, Nov 14 (Reuters) - Hedge funds including Eton Park Capital Management and Ellington Management Group took new positions in Sotheby's during the third quarter, joining activist investor Daniel Loeb as he pushes for change at the 269-year-old auction house.

Hedge fund managers have long been players in the world of high-end art, buying and hanging Picassos and Warhols on the walls of their homes and offices. But now the industry is seeking to cash in on another part of the art market.

Eton Park, founded by Eric Mindich, opened a large stake of almost 2 million shares, while Ellington, founded by Michael Vranos, scooped up 71,500 shares, according to regulatory filings with Securities and Exchange Commission.

During June and August Mick McGuire's Marcato Capital Management and Loeb's Third Point made 13-D filings saying they now owned big stakes and intended to shake things up. Separately they have been pushing the company to get rid of Chief Executive William Ruprecht, overhaul its strategy and better manage its balance sheet.

Since the activist investors began their campaign, Sotheby's stock price has climbed roughly 20 percent, upside that Eton Park and Ellington may have captured depending on when they bought their shares.

The quarterly disclosures of manager stock holdings are backward looking and come out 45 days after the end of each quarter, so it is unclear if the managers own Sotheby's stock in the same amount today.

Third Point is the largest shareholder in the New York City-based auctioneer, with a 9.3 percent stake, and has been the more vocal agitator. Loeb penned a scathing letter to Ruprecht in October criticizing the company's approach to auctions, private sales and Internet sales, as well as excessive spending and waste at the expense of shareholders.

Loeb cited an "extravagant lunch and dinner" at Blue Hill at Stone Barns restaurant in New York state "where Sotheby's senior management feasted on organic delicacies."

A source familiar with the situation, said the meeting was a two-day management retreat for about 40 to 50 senior-level officers and art specialists and that Loeb's "multiple hundreds of thousands of dollars" cost estimate was inflated.

Sotheby's and Ruprecht are fighting back, pointing to a rising stock price, blockbuster sales such as last year's $120 million auction of Edvard Munch's "The Scream," and this week's records set for Andy Warhol's work and its recent undertaking of a review of its financial strategies.

On Wednesday Sotheby's smashed records as it held the biggest auction in its history, led by a record-setting $105 million work by Warhol. Embattled hedge fund manager Steven A. Cohen had a number of pieces from his collection up for sale at the auction, according to reports in the New York Times.

Sotheby's in October adopted a so-called poison pill strategy to stop a hostile attempt to take over or increase control of the company.