Dan Loeb Comes To A Sleepy Town

Editor’s note: A version of this post appeared in the San Antonio Express-News under my “So…Money” column, “Dan Loeb Is Not ‘San Antonio Nice’.”

It’s probably hard for non-San Antonians to understand the importance of this one medium-sized company for the city’s image of itself. Rackspace is the darling of San Antonio’s business community, a single company carrying on its shoulders the hopes of 21st Century economic development to this sleep South Texas city. Rackspace’s faltering stock price, competitive pressure from internet giants Google, Amazon and Microsoft, and management changes at the top all make city boosters understandably nervous.

Most San Antonians do not know hedge funder Dan Loeb, so I thought I’d review some highlights of his style to an audience unfamiliar with him.

Third Point’s Dan Loeb has earned a place in the pantheon of the Top-10 most-talked-about hedge fund managers in the world, in part through his investing acumen, and in larger part through his acerbic letters to management of companies where Third Point LLC has taken a significant stake, and where he sees underperformance.

Loeb is a finance writer’s dream, because he provides the kind of quotable “He said!” and then “Can you believe he said back?” chisme that fueled all of our 7^th grade social lives.

I am reasonably certain that nothing that Dan Loeb does with respect to Rackspace will have any effect on the lives of people in San Antonio, except for maybe one or two top management Rackers who he seeks to personally humiliate. This will not be pleasant for them.

When Loeb does write about them, however, we will all have a front row seat to the boxing ring in which a smart and brutal man swings to land heavy punches on smart, less brutal, men.

In most cases in my writing I strive to remain above the “He said, she said” fray about finance, because of its profound irrelevance to real people’s actual lives.

But I confess that a small, evil, part of me is curious about the upcoming spectacle. I think this makes me not quite “San Antonio nice” yet.

If you have not sampled Dan Loeb’s so-called poison pen yet, let me introduce you to a few of his classics.

In 2006, to the insufficiently responsive board of directors of Nabi Biopharmaceuticals, Loeb wrote: “you hide your heads in the nearest warm aperture in an apparent “ostrich defense” and ignore your shareholders…in the hope that the Company’s owners will go away before your next annual meeting.”

To the CEO of a Spokane, WA-based lumber company named Potlatch corporation Loeb famously wrote in 2003 “Since you ascended to your current role of Chief Value Destroyer (“C.V.D.”) when you assumed the formal title of C.E.O in 1999, the shares have dropped over 45%, a destruction of shareholder value in excess of $520 million.” About underfunding the firm’s pension plan, Loeb lashed out to the CEO “Your sorry excuse that ‘everyone else does it’ is reminiscent of a teenager who uses peer pressure as a pretext to explain his drug problem. I only wish that I could recommend a recovery program for you and [then C.F.O.] Gerald Zuelhke for your apparent addiction that could be called “Value Destroyers Anonymous.”

To the directors of high-end auction house Sotheby’s, in 2013, Loeb penned “We acknowledge that Sotheby’s is a luxury brand, but there appears to be some confusion – This does not entitle senior management to live a life of luxury at the expense of shareholders.”

In that same letter Loeb further criticized Sotheby’s core art strategy, writing “It is apparent to us from our meeting that you do not fully grasp the central importance of contemporary and modern art to the company’s growth strategy, which is highly problematic since these are the categories expanding most rapidly among new collectors.” Sotheby’s, by the way, changed strategy and invited Loeb’s preferred three new board members.

On the subject of the underperforming shares of tech companies, Loeb can be particularly brutal, as when he relentlessly attacked Yahoo’s CEO Scott Thompson as well a board member Patti Hart for inaccuracies on their professional resumes. Thompson left shortly thereafter and was succeeded in the CEO position by Marissa Mayer.

Cultural clashes with high-profile brash commentators have a history of setting San Antonians teeth on edge. I’m thinking of Charles Barkley’s recent comments during the playoffs about women from the city. If Loeb does launch one of his poison pen attacks, I assume Rackspace will find the city rallying to its defense.

Because Dan Loeb is not San Antonio nice.

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