A prominent investor shareholder advisory firm recommended that Sotheby's investors should vote for two of the three board candidates suggested by activist investor Daniel Loeb.
Institutional Shareholder Services sent a report to clients early on Thursday morning that backs Loeb, an avid art collector who has been pushing the auction house to cut costs and become more competitive since last year. A copy was obtained by Reuters.
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ISS recommended shareholders vote for Loeb and Olivier Reza and said: "It appears that introducing some change into the boardroom is warranted."
The report gave fresh support to Loeb whose $14.5 billion hedge fund, Third Point, is Sotheby's single biggest investor, and who compared the company to "an old master painting in desperate need of restoration."
Loeb's proxy contest, launched earlier this year, quickly became one of Wall Street's most-watched battles, pitting one of the industry's best-known activist investors against the 270-year old auction house.
Sotheby's responded to the ISS report by urging shareholders to vote for its director nominees.
Loeb was not immediately available for comment.
The company's share price rose 3.44 percent to $42.05 in early trading on the New York stock exchange. The stock price has fallen 21 percent since the start of the year
The shareholder meeting is scheduled for May 6 in New York.
ISS said Sotheby's revenue growth has not been consistent and noted more total operating expenses have been added back in than the $185 million the company cut four years ago.
Even though the dissidents' strategic critique is not as fully developed as shareholders might want, ISS said "it has more meat on the bone than the vague notion the company has offered."
"Given the compelling case the dissidents have presented that the company's own financial performance, and particularly its weakened expense control, is substantially worse than its own record would suggest is possible, and the evidence that it has not only lost significant opportunities to realize shareholder value through that lack of expense discipline, but may be missing still more by not failing to take a more strategic view of how it organizes and conducts its business, it appears that introducing some change into the boardroom is warranted," ISS said in the report.
If Loeb were to win it would mark his first return to a corporate boardroom after sitting on Yahoo's board, where he handpicked a new chief executive officer which helped push up the company's share price.
He left Yahoo's board last year along with Harry Wilson, a restructuring expert who is also on Third Point's Sotheby's slate. ISS did not recommend voting for Wilson.
Sotheby's has denied Loeb's critiques and said his slate of board nominees would not add new relevant experience to the board. Sotheby's offered Loeb a board seat earlier in the year.
"Mr. Loeb has made no case that change is warranted at Sotheby's," the company said, adding "Mr. Loeb's lack of a substantive plan, his erratic and disruptive actions at Sotheby's, and his short tenure serving on other public company boards (less than two years) raise doubts about whether Mr. Loeb will put the interests of ALL Sotheby's shareholders ahead of his own."
Now each side will try to win support from uncommitted or undecided investors including BlackRock, which owns 8 percent of the company, and Vanguard, which owns 5.9 percent. Hedge fund Marcato Capital Management owns 6.6 percent of the company and has also pressed for change.