UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ¨ Filed by a Party other than the Registrant x
Check the appropriate box:
| ¨ | Preliminary Proxy Statement | |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| ¨ | Definitive Proxy Statement | |
| x | Definitive Additional Materials | |
| ¨ | Soliciting Material Under Rule 14a-12 | |
SOTHEBY’S
(Name of the Registrant as Specified in its Charter)
THIRD POINT LLC
THIRD POINT OFFSHORE MASTER FUND L.P.
THIRD POINT ULTRA MASTER FUND L.P.
THIRD POINT PARTNERS L.P.
THIRD POINT PARTNERS QUALIFIED L.P.
THIRD POINT REINSURANCE CO. LTD.
LYXOR/THIRD POINT FUND LIMITED
THIRD POINT ADVISORS LLC
THIRD POINT ADVISORS II LLC
DANIEL S. LOEB
HARRY J. WILSON
OLIVIER REZA
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. | |||
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
| (1) | Title of each class of securities to which transaction applies:
| |||
| (2) | Aggregate number of securities to which transaction applies:
| |||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
| |||
| (4) | Proposed maximum aggregate value of transaction:
| |||
| (5) | Total fee paid:
| |||
| ¨ | Fee paid previously with preliminary materials. | |||
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
| (1) | Amount Previously Paid:
| |||
| (2) | Form, Schedule or Registration Statement No.:
| |||
| (3) | Filing Party:
| |||
| (4) | Date Filed:
| |||
This filing contains an investor presentation distributed by Third Point LLC (“Third Point”) on April 14, 2014.
***
On March 28, 2014, Third Point, certain of its affiliates and associates, Mr. Harry J. Wilson, and Mr. Olivier Reza (the “Group”) filed with the Securities and Exchange Commission (the “SEC”) and began distributing to Sotheby’s stockholders a definitive proxy statement (the “Proxy Statement”) in connection with Sotheby’s 2014 annual meeting of stockholders. THIRD POINT STRONGLY ADVISES ALL STOCKHOLDERS OF SOTHEBY’S TO READ THE GROUP’S PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION, INCLUDING INFORMATION RELATING TO THE GROUP’S PARTICIPANTS IN SUCH PROXY SOLICITATION. THE GROUP’S PROXY STATEMENT, AS FILED, AND ANY FURTHER AMENDMENTS, SUPPLEMENTS OR OTHER RELEVANT PROXY SOLICITATION DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV.
 Investor Presentation
April 2014 |
 2
The information in this presentation is for information purposes
only, and this presentation does not constitute an offer to purchase or
sell any security or investment product, nor does it constitute professional advice. The
information in this presentation is based on publicly available information about
Sotheby’s. Except where otherwise indicated, the information in this presentation speaks only as
of the date set forth on the cover page. Permission to quote third party reports in this
presentation has been neither sought nor obtained.
This
presentation
may
include
forward-looking
statements
that
reflect
the
current
views
of
Third
Point
LLC
(“Third
Point”
),
Mr.
Harry
J.
Wilson,
and
Mr.
Olivier
Reza
and
their
respective
affiliates
and
associates
(collectively,
the
“Group”
)
with
respect
to
future
events.
Statements that include the words “expect,” “intend,”
“plan,”
“believe,”
“project,”
“anticipate,”
“will,”
“may,”
“would,”
and similar words
are often used to identify forward-looking statements. All forward-looking statements
address matters that involve risks and uncertainties, many of which are beyond the control of
the parties making such statements. Accordingly, there are or will be important factors that
could cause actual results to differ materially from those indicated in such statements and, therefore, you
should not place undue reliance on any such statements. Any forward-looking statements made
in this presentation are qualified in their entirety by these cautionary statements, and there
can be no assurance that the actual results or developments anticipated by
the Group will be realized or, even if substantially realized, that they will have the expected
consequences to, or effects on, Sotheby’s or its business, operations, or financial
condition. Except to the extent required by applicable law, the Group undertakes no
obligation to update publicly or revise any forward-looking statement, whether as a result of new
information, future developments, or otherwise.
On
March
28,
2014,
Third
Point
LLC
and
certain
of
its
affiliates
filed
with
the
Securities
and
Exchange
Commission
(the
“SEC”
)
and
began
distributing
to
Sotheby’s
stockholders
a
definitive
proxy
statement
(the
“Proxy
Statement”
)
in
connection
with
Sotheby’s
2014
annual meeting of stockholders. Third Point strongly advises all stockholders of Sotheby’s
to read the Group’s Proxy Statement because it contains important information, including
information relating to the Group’s participants in such proxy solicitation. The
Group’s Proxy Statement, as filed, and any further amendments, supplements, or other
relevant proxy solicitation documents will be available at no charge on the SEC’s website
at http://www.sec.gov. Disclaimer
Source: Third Point LLC |
 3
Source: Third Point LLC
Third Point Overview
4
Situation Overview
5
Benefits of Shareholder Involvement
6
Current Board’s Misdirection Campaign
7
Third Point’s Business Case
8
Sotheby’s
9-15
Overview of Sotheby’s Shortcomings
16
–
Corporate Governance
17-19
–
Expense Discipline
20-22
–
Growth Opportunities
23-24
Sotheby’s Potential
25
Conclusion
26-27
Appendix: The Shareholder Slate
28-30
Table of Contents |
 4
Event Driven Investment Strategy
–
Focused on special situation investing across capital structures
Proven Track Record
–
Produced
average
net
annualized
returns
since
inception
in
1995
of
21.2%
while
the
CS/Tremont
Event
Driven
Index,
HFRI
Event
Driven
Index,
and
S&P
500
have
returned
10.0%,
10.4%,
and
8.9%,
respectively,
over
the
same
period
Successful Activist Investor
–
Bloomberg recently highlighted how three Third Point activist investments (Yahoo!,
CF Industries, Murphy Oil) delivered returns for public shareholders that
beat the S&P 500 in an article entitled, “Activist Investors are Good for the Stock Price”
–
At Yahoo!, Third Point helped create approximately $15 billion of value for
shareholders, as the share price increased over 85% while Third Point
directors served on the board from May 2012 until July 2013
Third Point LLC is an investment adviser based in New York
Note:
all
returns
calculated
for
Third
Point
Partners
L.P.
and
S&P
from
inception
(June
1995)
through
3/31/14;
all
references
to
the
CS/Tremont
Event
Driven
Index
and
HFRI
Event
Driven
Index
reflect
performance
calculated
through
2/28/14
Source:
Third
Point
LLC;
Bloomberg
article
“Activist
Investors
are
Good
for
the
Stock
Price”
from
April
3,
2014
Third Point LLC (“Third Point”) is an SEC-registered investment
adviser based in New York Approximately $14.5 billion under management
Founder
and
CEO,
Daniel
S.
Loeb,
has
over
28
years
of
experience
in
the
financial
markets
Firm Overview
Third Point Highlights
Third Point Overview |
 5
How did we get here?
–
Third
Point
owns
~9.6%
of
Sotheby’s
(the
“Company”
or
“BID”)
and
believes
the
Company
can
generate
significantly
more
value for shareholders through, among other things, an infusion of new leadership,
better accountability, and increased transparency
–
Accordingly, Third Point and the Company held a number of in-person and
telephonic meetings between August 2013 and February 2014 to discuss Third
Point’s ideas about how to increase long-term value for shareholders
–
During these meetings, the Company offered a Board seat to Mr. Loeb; however, based
on Third Point’s experience, a single nominee from an outside
shareholder in a boardroom of 12 directors is not sufficient to bring about needed change
What is Third Point suggesting specifically?
–
Three directors to reinvigorate the Board and help Sotheby’s achieve its
substantial potential –
In this case, we believe that three is the right number given the total size of the
Sotheby’s Board (12 directors), the number of
committees
on
the
Board,
and
the
specific
challenges
faced
by
the
Company
–
Furthermore, three directors has proven to be effective for Third Point in the
past, e.g., three Third Point nominees were elected to the Yahoo!
Board Why should Third Point’s nominees (the “Shareholder
Slate”) be elected? –
The
BID
nominees
we
oppose
(Robert
A.
Taubman,
Daniel
Meyer,
and
Jessica
M.
Bibliowicz),
collectively,
have
limited
share ownership and qualifications that do not appear to add value for
Sotheby’s shareholders –
The Shareholder Slate (Daniel S. Loeb, Harry J. Wilson, and Olivier Reza),
collectively, owns nearly 10% of the Company and was carefully selected for
its expertise in unlocking long-term value for public shareholders, enhancing operational
efficiencies, and formulating strategy at luxury companies
In
fact,
Third
Point
nominees
have
already
delivered
benefits
to
Sotheby’s
shareholders…
Source: Third Point LLC
Situation Overview |
 6
Benefits of Shareholder Involvement
Benefits of greater shareholder involvement are already clear, but without continued
collaboration, progress will stall
Source: Third Point LLC; Stifel Analyst Research
Third Point Action
Response
May 2013: Third Point files 13F showing new
position in BID
Sell-side writes that “the new presence of a well-known
shareholder-value
advocate
investor”
will
bring
attention
to
real estate, excess capital, and expense growth
August 2013: Third Point has first meeting with
Sotheby’s to discuss opportunities for improvement
Company announces a review of its capital allocation and
financial policies
Company appoints a new CFO
October 2013: Third Point sends public letter to
Sotheby’s expressing concerns about leadership,
shareholder misalignment, strategic direction, Board
governance, and expense growth
Sotheby’s expands capital allocation review to include
examination of strategy, business, and cost structure
Sotheby’s appoints new Lead Independent Director
Sotheby’s publicly announces frameworks for business
reinvestment and excess capital return, as well as a special
dividend and cost savings program
February 2014: Third Point nominates three new
directors and highlights the lack of owner’s
perspective in the Boardroom as well as the long
tenure of current Board
Sotheby’s shares its conclusion that Mr. Loeb would be an
appropriate Board member and offers him a Board seat
Sotheby’s nominates two new directors to replace Sovern
(tenure: 14+ years) and Dodge (tenure: 8+ years) |
 7
Current Board’s Misdirection Campaign
In a recent presentation, the current Board actively misled investors about Mr.
Loeb’s credentials and Third Point’s track record of creating value
for shareholders Gross misstatements regarding Mr. Loeb’s expertise
and experience by claiming Mr. Loeb has “no experience” in the
art/ auction, luxury, and digital media/communications spaces These
statements are plainly false: –
In the art/auction and luxury spaces, Mr. Loeb is a leading collector of modern
and contemporary art, has been recognized by ARTNews
as
one
of
the
“200
Top
Collectors”
each
year
since
2005,
has
had
portions
of
his
personal
collection
exhibited
at
the
MoMA
in
New
York
and
in
other
global
museum
retrospectives
and
shows,
and
is
a
trustee
of
the
MOCA
in
Los
Angeles
–
In the media/communications area, Mr. Loeb served on the board of Yahoo!, a
leading digital medial/ communications firm, from May 2012 to July
2013 False
statements
Disingenuous criticism of Mr. Loeb’s Yahoo! involvement without reference to
the benefits he brought to all Yahoo! shareholders
–
Greater than 85% increase in Yahoo!’s stock price while Mr. Loeb was a member
of the Yahoo! Board and another ~20%
increase
in
Yahoo!’s
stock
price
since
Third
Point
sold
a
portion
of
its
shares
(at
the
market
price)
back
to
Yahoo! at the
company’s request
Specious
conclusion
that
Mr.
Wilson
and
Mr.
Reza
would
add
“no
incremental
relevant
experience”
to
the
Board despite obvious evidence to the contrary and without even bothering to
interview them Disingenuous
criticism
Highly misleading use of quotations from third party sources by selectively
quoting excerpts from articles by Gabelli & Co. and The New York Times
that misrepresented the full message of the articles Quotations
only
presented
a
one-sided
story
and
left
out
praise
of
the
accomplishments
and
value
that
Third Point
and Mr. Loeb brought to Yahoo!
–
The Gabelli & Co. report actually states: “Third Point was the largest
pre-transaction shareholder at ~60 million shares and the
architect of
the
2012
Board
reorganization
(which
we
continue
to
applaud),”
and,
later,
“With
its
2012
reorganization,
Third
Point
brought
a
shareholder
advocate
and
adult
supervision
to
the
table.”
–
The New York Times article actually states, regarding Third Point’s
directors: “These were good directors, and they were part of needed
change at Yahoo!.” Misleading
quotations
Source: Third Point LLC; Sotheby’s “Investor Briefing” slides from April 8, 2014;
Gabelli & Co.; The New York Times |
 8
Management’s
claim
that
2013
was
a
“record”
year
is
misleading
and
demonstrates
the
risk
of
having
a
Board
asleep
at
the
switch
While, relative to the Company’s prior peak in 2007, the Company sold a
greater dollar value of art, the more meaningful metric is that the Company
generated less revenue and spent more money to do so
The bottom line is that earnings per share were down 42% versus their prior
peak Given the global tailwinds in the marketplace, this performance is
unacceptable and we believe it can be linked back to failed leadership of
the Sotheby’s Board Source: Third Point LLC
Our business case is a simple one
Third Point’s Business Case
We strongly believe the Shareholder Slate can reinvigorate the Board and
help Sotheby’s achieve its substantial potential |
 Sotheby’s is one of the world’s two leading auction houses
9
CY2013 business mix
Business overview
854
6,306
Sotheby’s: Overview
Note: auction sales represent the hammer price of property sold at auction and
auction revenue represents total auction commissions; private sales represent the total purchase price of property
sold in private sales brokered by Sotheby’s and private sale revenue
represents private sale commissions; other revenue includes auction guarantee and inventory activities, other agency
revenues (fees charged to clients for catalogue production, insurance, etc.),
principal revenues, finance revenues, license revenues, and other revenues
Source:
Third
Point
LLC;
Company
financials;
Sotheby’s
“Investor
Briefing”
slides
from
October
15,
2013
and
April
8,
2014
Auction sales by category
Auction
Sales, 5,127
Auction
Sales, 688
Private Sales,
1,179
Private Sales,
88
Other, 78
0%
20%
40%
60%
80%
100%
Value of Property Sold
Revenue Mix
Millions of USD
Contemporary
27%
Impressionist
22%
Asian
Other
Jewelry
Other Paintings
9%
Old Masters
4%
17%
11%
10%
Founded in 1744 in London and today operates globally with 90
locations in 40 countries
Conducted 230 auctions in 9 auction salesrooms around the world
last year; also operates private sales galleries in New York, Hong
Kong, and London
Over 70 collecting categories including fine art, furniture, and jewelry
Focused on the “middle and upper echelons of the auction market”
according to management
Relative to Christie’s only, Sotheby’s had approximately 46% market
share in auctions in 2013 vs. approximately 54% for Christie’s
|
 10
Sotheby’s: Shareholder Return
Current
Board
claims
BID
shares
have
outperformed
the
market;
however,
a
quick
look
at
historical
performance
suggests
failure
to
create
enduring
value
for
shareholders
Source: Third Point LLC; Bloomberg (15-year daily price chart)
Sotheby’s stock
price has been
highly volatile
over the past 15
years
Price basically flat
vs. 1999 and
materially below
its 2007 high
Historical
performance
suggests current
leadership has
failed to create
enduring value for
shareholders over
the long-term |
 11
Sotheby’s: Structural Tailwinds
Global population of ultra high net worth individuals (“ultra-HNWI”) and
their combined aggregate wealth have increased to record levels (even before
factoring in gains from 2013) Ultra-HNWI +8% vs. 2007
Ultra-HNWI aggregate wealth +9% vs. 2007
Note: ultra-HNWI defined as those with USD $30 million or more in investable assets; investable
wealth does not include the value of personal assets and property such as primary residences,
collectibles, consumables, and consumer durables; 2013 figures not yet available
Source: Third Point LLC; Cap Gemini World Wealth Reports 2008-2013 Thousands of people
Trillions of USD
103.3
77.9
93.1
102.6
100.0
111.0
60
80
100
120
2007
2008
2009
2010
2011
2012
# of Ultra-HNWIs
15.0
11.4
13.8
15.4
14.7
16.3
10
12
14
16
18
2007
2008
2009
2010
2011
2012
Ultra-HNWI Aggregate Investable Wealth |
 12
Sotheby’s: Luxury and Art Markets
Note: luxury market figures include apparel, perfumes and cosmetics, accessories,
hard luxury and art de la table; global art market figures based on actual auction
and dealer sales data, as well as projections based on the results from polling
(per TEFAF) Source: Third Point LLC; Altagamma / Bain; TEFAF (The European
Fine Art Foundation) Art Market Reports for 2011 through 2013 As one might
expect, luxury consumption across a variety of categories is on the rise, yet
the art market appears to be flat
Luxury consumption +28% vs. 2007
Category leaders
like Sotheby’s are
responsible for
expanding their
respective markets
Flattish art market
suggests Sotheby’s
has done a poor job
making art more
accessible and
appealing to HNWIs
Even though art, in
general, is perceived
to be a greater store
of value than most
luxury products
(e.g., handbags)
Yet the art market is flat vs. 2007
100
150
200
250
2007
2008
2009
2010
2011
2012
2013
Global Luxury Market
Billions of EUR
20
30
40
50
60
2007
2008
2009
2010
2011
2012
2013
48.1
42.2
28.3
43.0
46.1
43.0
47.4
170
167
153
173
192
212
217
Global Art Market
Billions of EUR |
 13
Sotheby’s: Auction and Private Sales
Sotheby’s has generated a similar level of auction and private sales, though a
closer look suggests
they
might
be
losing
share
in
“art”
given
growth
in
other
categories
like
jewelry
Note: global art market data from 2007 through 2013, per TEFAF, is based on actual
auction and dealer sales data, as well as projections based on the results from polling
Source: Third Point LLC; Company filings; TEFAF (The European Fine Art Foundation)
Art Market Reports for 2011 through 2013 Value of auction and private sales
combined only up slightly vs. 2007
Flattish sales in a
flattish market
suggests the Company
has failed to gain
market share
In fact, the Company
may actually be losing
share in “art”
given
strong growth in “non-
art”
categories
–
E.g., jewelry now
comprises 10% of
auction sales vs.
5% in 2007
But is Sotheby’s losing
share in “art”?
6,306
6,122
-10%
6,122
5,279
4,782
5,801
5,380
6,306
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0
2,000
4,000
6,000
8,000
2007
2008
2009
2010
2011
2012
2013
Auction and private sales in millions of USD (left axis);
art market in millions of EUR (right axis)
Aggregate Auction and Private Sales
Global Art Market
5,122
4,614
270
513
730
1,179
2,000
4,000
6,000
8,000
2007
2013
Millions of USD
Aggregate Auction Sales of All Other Categories
Aggregate Auction Sales of Jewelry
Private Sales (category breakdown not disclosed)
2,751 |
 14
Sotheby’s: Revenue and Expenses
Note: revenue includes auction commissions, private sale commissions, other agency
revenues, finance revenues, licensee fee revenues, other revenues AND excludes auction guarantee and
inventory activities, principal revenues; expenses include agency direct costs,
marketing, salaries and related costs, general and administrative costs, depreciation and amortization AND
excludes cost of principal activities, restructuring charges, impairment charges,
anti-trust related matters, gains on sale of land Source: Third Point
LLC; Company filings Why has Sotheby’s generated less revenue from a
similar level of auction and private sales?
-6%
Why have expenses surpassed peak levels
despite a large cost savings program in 2009?
+2%
Mgmt targeted annual savings
of $100 million in 2009 vs. 2008
877
719
468
747
810
744
825
0
100
200
300
400
500
600
700
800
900
1,000
2007
2008
2009
2010
2011
2012
2013
Millions of USD
Sotheby's Revenue
582
395
475
532
533
597
0
100
200
300
400
500
600
700
2007
2008
2009
2010
2011
2012
2013
Millions of USD
Sotheby's Expenses
556
More importantly, relative to 2007 (prior peak), revenue is down and expenses are up |
 15
Sotheby’s: EPS
As a result, earnings per share (“EPS”) has declined 42% relative to
peak Note: Reported EPS is a GAAP number
Source: Third Point LLC; Company filings
Why is the Board extolling 2013 as a “Record Year”?
Down 42%!
$3.25
$0.44
($0.10)
$2.34
$2.46
$1.57
$1.88
($1.00)
$0.00
$1.00
$2.00
$3.00
$4.00
2007
2008
2009
2010
2011
2012
2013
EPS in USD
Sotheby's Reported EPS |
 16
Overview of Sotheby’s Shortcomings
We believe Sotheby’s weak performance can be tied back to poor corporate
governance, irresponsible cost expenditures, and missed opportunities for
growth Source: Third Point LLC; Bloomberg
Current directors lack “skin in the game”
due to limited share ownership, i.e., only 0.87% of outstanding
common
stock,
a
significant
portion
of
which
was
granted
as
part
of
the
Board’s
compensation
package
Current directors average nearly 9 years of service
Rapid adoption of a “poison pill”
in response to a letter from Third Point in the hopes of preventing Third Point
from having a say in the boardroom
Poor Corporate
Governance
Auction commission margins seem low relative to attractive fee structure in part
due to the unchecked use of fractional commissions
CEO remuneration is high given the size of the Company ($3.0bn mkt cap) and
perquisites are throwbacks to a bygone era; also, limited transparency in
communicating how executive awards are determined Announced cost savings
program barely scratched the surface and suggests the Company failed to make any
serious efforts to tackle the harder issues
Lack of
Expense
Discipline
Sotheby’s needs to articulate a strategy and vision
Both auction and private sales growth can be accelerated with better technology,
more dynamic sales techniques,
and
improved
client
relationship
management,
as
well
as
more
online
and
curated
sales
Management can deploy more capital against the profitable secured lending
business Principal and dealer activities, though small today, can be
expanded significantly through partnerships with living artists,
artists’ estates, and even real estate developers
Additional brand extension opportunities should also be explored
Failure to Seize
Growth
Opportunities |
 Director
Shares Owned
(‘000s)
% Ownership
Open market
activity since 1/1/12
Bill Ruprecht (CEO)
194.3
0.28%
Sold 86.4k
John Angelo
142.4
0.21%
Sold 137.5k
Duke of Devonshire
59.8
0.09%
Bought 5.0k
Robert A. Taubman
49.8
0.07%
-
Dennis M. Weibling
43.7
0.06%
-
Steven Dodge (retiring)
27.2
0.04%
Bought 14.6k
Michael I. Sovern (retiring)
26.7
0.04%
-
Allen Questrom
22.1
0.03%
-
Diana Taylor
18.4
0.03%
-
Daniel Meyer
6.7
0.01%
-
Marsha Simms
6.7
0.01%
-
Domenico De Sole
4.7
0.01%
Bought 4.0k
Total
602.7
0.87%
Sold 200.3k
Jessica M. Bibliowicz (nominee)
0.0
0.00%
-
Kevin C. Conroy (nominee)
0.0
0.00%
-
17
Current
Board
has
little
economic
interest
in
the
performance
of
the
Company
whereas
the
Shareholder Slate has “skin in the game”
2013 weighted avg. diluted share count of 69.175M
Source: Third Point LLC; Company filings; Bloomberg
Corporate Governance
No “owner’s perspective”
in
the boardroom; directors
hardly own any stock
–
Substantial majority of
owned shares were stock
awards
–
CEO has never purchased
shares in the open market
per Bloomberg
Since 1/1/12, directors as a
group have been net sellers
New board nominees have
NOT
purchased a single share
The Shareholder Slate owns more
than 10x as many shares as the
current Board combined and both
Harry J. Wilson and Olivier Reza
have already purchased shares
To be replaced by the Shareholder Slate
Note: shares owned as of March 24, 2014 and include deferred stock units, dividend equivalent rights,
as well as shares owned by wives, children, etc; ownership percentage calculated using |
 Director
Tenure
Duke of Devonshire
19.6
Bill Ruprecht (CEO)
14.2
Michael I. Sovern (retiring)
14.2
Robert A. Taubman
13.7
Allen Questrom
9.3
Steven Dodge (retiring)
8.1
Dennis M. Weibling
7.9
John Angelo
7.0
Diana Taylor
7.0
Daniel Meyer
2.9
Marsha Simms
2.9
Domenico De Sole
0.3
Average
8.9
Jessica M. Bibliowicz (nominee)
0.0
Kevin C. Conroy (nominee)
0.0
18
Current Board lacks fresh perspective necessary to overhaul the Company’s
challenged operational structure and cure its cultural malaise
Note: tenure estimated using start dates disclosed in the Company’s 2014
Proxy Source: Third Point LLC; Company filings; Institutional Shareholder
Services Institutional Shareholder Services
(“ISS”) recently released
“QuickScore 2.0”
guidelines for
optimal Board structure stating:
“tenure of more than nine years
(can) …
potentially compromise a
director’s independence”
Using this metric, Sotheby’s current
Board fares quite poorly
Nine directors have served for
more than seven years; five of
which for more than nine
Corporate Governance
The Shareholder Slate would bring the
expertise and fresh perspectives
necessary to move Sotheby’s forward
To be replaced by the Shareholder Slate |
 19
Corporate Governance
Current Board seems more interested in ensuring its members are protected, as
evidenced by its rapid adoption of a discriminatory poison pill in response to
a letter from Third Point Current Board adopted a poison pill only two days
after Third Point (~9.6% owner) published an open letter to Sotheby’s
calling for increased transparency and accountability and offering suggestions for improvement
Poison Pill
On March 25, Third Point filed a lawsuit asking the Delaware Chancery Court to
require the Company to redeem
the
pill
or,
in
the
alternative,
either
amend
it
to
allow
Third
Point
to
acquire
up
to
20%
of
the
Company
or enjoin the Company from enforcing the pill against Third Point
On March 31, the Court granted Third Point’s request for expedited discovery
and set a preliminary injunction hearing
for
April
25,
in
advance
of
the
planned
May
6
stockholders’
meeting
Note: percentage ownership calculated using 2013 weighted avg. diluted share
count Source: Third Point LLC; Company filings
Lawsuit
Oddly, Sotheby’s poison pill permits passive investors (those more likely to
be supportive of the current Board) to acquire up to 20% of the outstanding
shares, while prohibiting non-supportive shareholders from acquiring
10% or more –
Third Point is a minority shareholder looking for minority representation on the
Board
–
Corporate takeovers are not Third Point’s business model and Third Point has
no intention of taking control of Sotheby’s, which the Company
knew While claiming to embrace an open and honest dialogue with shareholders
of the Company, we believe this poison pill demonstrates that the current
Board is more interested
in
ensuring
that
its
members
are
protected
than
it
is
in
maximizing
value
by considering shareholders’
suggestions for improvement |
 20
Expense Discipline
Note: hammer price is the final sale price before the buyer’s premium is
paid Source: Third Point LLC; Company filings
Auction commission margins seem low relative to attractive fee structure in part due
to the unchecked use of fractional commissions
Attractive auction fee structure, i.e.
house charges large % hammer price
Yet actual margins suggest BID is
leaving a lot of money on the table
Hammer Price of $4,200,000
(average hammer price of lots over $1 million in 2013)
Buyer’s Premium
(always paid; sometimes shared with consignor)
–
25% * $100,000
= $25,000
–
20% * $1,900,000
= $380,000
–
12% * $2,200,000
= $264,000
–
Sub-total
= $669,000
(15.9% of hammer)
Vendor’s commission
(up to 10%; negotiable)
–
10% * $4,200,000
= $420,000
Total Auction commission
= $1,089,000
(25.9% of hammer)
Margins should be even higher for smaller lots given
how the buyer’s premium is calculated
Auction margins suggest
limited fees collected from
consignors and increased
use of fractional
commissions, where
Sotheby’s shares the
buyer’s premium with the
consignor
The Shareholder Slate
recommends curtailing
the use of fractional
commissions and, at the
very least, completing a
detailed review of the
practice since it does not
appear to be generating
sufficient incremental
auction volumes
20.7%
18.3%
16.5%
16.3%
15.9%
0%
5%
10%
15%
20%
25%
2009
2010
2011
2012
2013
Auction commissions as % of hammer price
Sotheby's Auction Commission Margin |
 Expense Discipline
While
CEO
compensation
seems
high
and
perquisites
are
legendary,
shareholders
should
be
more
troubled
by
the
lack
of
transparency
and
lack
of
pay
for
performance
Source: Third Point LLC; Company filings; Bloomberg
CEO compensation in 2013 nearly as high as 2007
despite more than 40% decline in EPS
Absolute level seems high for such a small company
(approximately $3bn market cap)
Beyond the level itself, the CEO’s perquisites are
throwbacks to a bygone era
–
He receives a $25,000 annual personal automobile
allowance, his country club dues are paid for, and his
financial planning fees are covered by shareholders
More alarming is the lack of transparency in
communicating how these awards are determined
–
The Company states in this year’s proxy that
“disclosing certain performance goals would cause
serious competitive harm,”
making vague excuses as
a response to reasonable cries for accountability from
shareholders
Finally, seemingly no pay for performance culture
More color on compensation
The Shareholder Slate believes shareholders should not
stand for the Company awarding such generous
compensation packages without transparency and
seemingly any connection to performance
21
6.2
6.0
$3.25
$1.88
$1.50
$2.50
$3.50
0.0
2.0
4.0
6.0
8.0
10.0
2007
2013
CEO compensation in millions of USD (left axis);
EPS in USD (right axis)
CEO Compensation
Sotheby's EPS |
 22
Expense Discipline
Note: expenses include agency direct costs, marketing, salaries and related costs,
general and administrative costs, depreciation and amortization AND excludes cost
of principal activities, restructuring charges, impairment charges, anti-trust
related matters, gains on sale of land; cost items do not sum due to rounding
Source:
Third
Point
LLC;
Company
filings;
Sotheby’s
“Capital
Allocation
and
Financial
Policies
Review”
slides
from
January
29,
2014
Announced cost savings program barely scratches the surface and suggests the Company
failed to make any serious efforts to tackle harder issues
Cost review only identified savings
representing nominal % total spend
More than half of
targeted savings come
from slashing the
marketing budget and
securing more
favorable terms from
external advisors
Salaries & Related Costs
($293 million): no
savings
General & Administrative
($177 million): $9
million savings from negotiated reduction in rates
and reduced scope of services on professional
fees and $4 million from other savings
Direct Costs of Auction Services
($85 million):
$5 million savings from increased efficiencies
and enhanced spending controls
Marketing
($22 million): $4 million savings from
more targeted approach to spending on core
strategic priorities and reduction or elimination of
less strategic components of marketing
expenses
D&A
($19 million): no savings
Company expenses
The Shareholder Slate
recommends seriously
analyzing both the
organizational structure
and expense base
597
22
0
100
200
300
400
500
600
700
2013 Expenses
2014 Savings
Millions of USD |
 23
Growth Opportunities
Sotheby’s has clear opportunities to grow and become stronger over the
long-term Source: Third Point LLC
Define what Sotheby’s is today or what it wants to be
–
Competitors are laser-focused on the consumer experience and their brand,
while Sotheby’s appears indifferent
Articulate a long-term growth strategy and vision for the Company and its
brand Formulate a strategy to manage the inherent cyclicality of its
markets –
Contingency plan for the next downturn should have both defensive and offensive
elements (e.g., prudent management of capital and expenses, opportunity to
be a buyer or lender of last resort, development of cycle proof earnings
streams) Strategy &
Vision
Invest in long-term talent development and recruitment
Cultivate numerous points of contact within the Company so that collectors and
consignors become clients of Sotheby’s, not just individual
specialists Invest in front-end technology to facilitate online sales
and auctions Invest in data technology to record private sale and auction
inquiries to promote cross-selling, improve customer service, and
increase volume Follow up with clients to drive cross-selling to capture
a greater share of each client’s relevant spending Develop a robust
approach to smaller ticket items in order to grow the customer base and compete more
effectively with Christie’s
Auctions &
Private Sales
The Shareholder Slate sees many areas of opportunity available to the Company
|
 24
Growth Opportunities (cont’d)
Sotheby’s has clear opportunities to grow and become stronger over the
long-term Source:
Third
Point
LLC;
Sotheby’s
“Capital
Allocation
&
Financial
Policies
Review”
slides
from
January
29,
2014
Deploy
more
capital
against
profitable
secured
lending
business,
especially
now
that
the
business
has
a
separate debt facility to efficiently fund loans (consignor advances, general term
loans) –
Seemingly
no
shortage
of
capital
with
Sotheby’s
having
just
returned
$300
million
of
“excess”
capital
to
shareholders
Secured
Lending
Build a private business: initiate a greater number of curated auctions and
exhibitions to leverage Sotheby’s client base, real estate, and
relationships –
Opportunity exists to take share from art dealers and gallery owners (some of
which are rumored to be generating over $ 1 billion of sales annually)
given Sotheby’s superior and continuous legacy, global footprint, and
in-house expertise No
defined
long-term
plan
for
the
Company’s
S|2
galleries
–
How are artists chosen? How does Sotheby’s leverage its entire platform to
promote them? And why is it even
called
S|2
and
not
Sotheby’s?
Consider
partnering
with
living
artists
and
representing
artists’
estates
Principal &
Dealer
Explore additional brand extension opportunities
–
E.g., wine storage, data analytics
Develop a more thoughtful retail strategy
–
What is the long-term plan for Sotheby’s Diamonds and Sotheby’s
Wine? –
How can the Company better utilize its locations when auctions aren’t
happening? Brand
Extension |
 25
Note: Revenues and expenses exclude inventory and principal activities as well as
extraordinary items; Other Revenue includes Other Agency Revenues, Finance Revenues, License Fee
Revenues and Other Revenues
Source:
Third
Point
LLC;
Company
filings;
Sotheby’s
“Capital
Allocation
&
Financial
Policies
Review”
slides
from
January
29,
2014;
Christie’s
website
Sotheby’s Potential
Operating
failures
in
2013
cost
shareholders
significant
value
–
conservative
improvements
in
revenue
growth
and
expense
discipline
could
have
more
than
doubled
EPS!
Pro forma earnings power
The Shareholder Slate
intends to focus on
improving operating
performance
All figures in millions of USD
2013
PF2013
Modest Improvements Yield Significant Value
Drivers:
Aggregate Auction Sales
5,127
5,940
same as Christie's in 2013; historically BID was larger
Net Auction Sales
4,339
5,027
% Aggregate Auction Sales
84.6%
84.6%
no change
Private Sales
1,179
1,179
Revenue:
Auction Commissions
688
847
Margin
15.9%
16.9%
just +100bps vs. 2013; historically as high as 20.7%
Private Sale Commissions
88
88
Other Revenue
49
49
Total Revenue
825
985
Expenses:
Direct Costs, Marketing, G&A
(284)
(256)
targeting 10% reduction vs. 8% target by mgmt ($22m on $284m)
Salaries & Related Costs
(293)
(264)
targeting 10% reduction; likely inefficiences exist here too
Total Expenses
(577)
(520)
EBITDA
248
465
D&A
(19)
(21)
4Q13 run-rate
EBIT
228
444
Interest & Other
(37)
(32)
4Q13 run-rate
Pretax Income
192
412
Effective Tax Rate
(30%)
(30%)
effective tax rate from Sotheby's 2013 10-K
Net Income
134
288
# Shares
69.2
69.2
EPS
$1.94
$4.17 |
 26
Third Point has a proven track record of creating long-term
value for public shareholders and has already delivered benefits to
Sotheby’s shareholders The Shareholder Slate brings much needed
outsider perspectives to a tenured and complacent Board that has presided
over lackluster operating performance With reinvigorated leadership and an
owner’s perspective in the boardroom, Sotheby’s can leverage its
leading brand to generate significantly higher revenues and profits Source:
Third Point LLC Key takeaways
Conclusion
The Shareholder Slate can be counted on to
create future value for all shareholders |
 27
Source: Third Point LLC
The Shareholder Slate
Conclusion |
 28
Source: Third Point LLC
Daniel S. Loeb
Appendix: The Shareholder Slate
Over the course of his nearly two decades as an institutional investor, Mr. Loeb has
developed a sophisticated understanding of how to create and unlock
long-term value for shareholders. As Chief Executive Officer of the Company's
largest shareholder, Mr. Loeb would advocate vocally for stockholders' interests if
elected to the Board. For these reasons, we believe Mr. Loeb is exceptionally
qualified to serve as a director of the Company. Daniel S. Loeb is the Chief Executive Officer
of Third Point LLC, a New York-based investment management firm he founded in 1995.
Third Point employs an event-driven approach to investing in securities across the globe.
Immediately before founding Third Point, Mr. Loeb was Vice President of high yield sales
at Citigroup. From 1991 to 1993, he was Senior Vice President in the distressed debt department
at Jefferies & Co. Mr. Loeb began his career as an Associate in private equity at E.M. Warburg Pincus & Co. in 1984
From May 2012 until July 2013, Mr. Loeb was a member of the Board of directors of Yahoo! Inc. He is a
Trustee of the United States Olympic Foundation, Mount Sinai Hospital, the Manhattan Institute,
and Prep for Prep. He is the Chairman of the Board of Success Academies Charter Schools. He is
also a member of the Council on Foreign Relations and the American Enterprise Institute’s National
Council. Mr. Loeb graduated with an A.B. in Economics from Columbia University in 1983 Mr. Loeb, a leading collector of modern and contemporary art, has
been recognized by ARTNews as one of the “200 Top Collectors” each year since 2005.
Works from his family collection are frequently included in global museum retrospectives and shows. Mr. Loeb has
assembled one of the most extensive collections of work by the artist Martin Kippenberger, many of
which were featured in the 2009 exhibition “The Problem Perspective” at the Museum of
Modern Art in New York. Mr. Loeb is a Trustee of the Museum of Contemporary Art, Los Angeles |
 29
Source: Third Point LLC
Olivier Reza
Appendix: The Shareholder Slate
Olivier Reza, through Myro Capital L.L.C., is, and has been since 2009, the
Chairman of Reza Gem SAS, a private French company that is associated with
Alexandre Reza’s jewelry business The Reza jewelry collection is
considered one of the most important collections of rare gems and jewelry in the world
Mr. Reza is the Founder and Managing Partner of Myro Capital, LLC, which provides
management and financial advisory services to family members and associated
entities Previously, Mr. Reza served as Managing Director in the Mergers and
Acquisitions group at Lazard Freres & Co LLC in New York, where he spent
ten years working on transactions totally over $100 billion in industries ranging from industrial to consumer,
retail, distribution, metals and mining, oil and gas, pharmaceuticals, and
manufacturing Mr. Reza has a Masters degree in corporate and tax law from the
University of Pan Theon Assas in Paris and a Masters degree in finance from
Institut d’Etudes Politiques de Paris Over the course of his career, Mr.
Reza has gained valuable finance and transactional experience and has had the
opportunity to manage and lead an international jewelry company,
developing expertise in cultivating relationships with
luxury customers. Mr. Reza personally has been, and continues to
be, a very active art collector. For these reasons, we
believe Mr. Reza is exceptionally well-qualified to serve as a director of the
Company |
 30
Source: Third Point LLC
Harry J. Wilson
Appendix: The Shareholder Slate
Harry Wilson, the Founder and CEO of MAEVA Group, LLC, is a
nationally-recognized expert in corporate restructurings, turnarounds,
and transformations and in leading complicated businesses through corporate
transitions, as an investor/owner, advisor, or director.
In addition to MAEVA’s active role in transforming companies, Mr. Wilson
frequently drives transformational change in his personal capacity as a
member of the Board of Directors of companies undergoing major transitions. Currently, Mr. Wilson serves
on the board of Visteon Corporation and recently completed service on the boards of
Yahoo! and YRC Worldwide. He also served on the board of directors of
several other companies earlier in his career. In each of his recent director roles, he was
asked to join the board by one or more major investors who wanted his help
improving the respective company. Upon joining the board,
he
worked
closely
and
collaboratively
with
management
and
his
fellow
directors
to
dramatically
change
the
operations
of
these businesses and substantially improve their prospects for success. In all
three recent public company situations, investors benefited from enormous
value creation through Mr. Wilson's work. Before
founding
MAEVA,
Mr.
Wilson
was
a
Senior
Advisor
to
the
US
Treasury
Department,
serving
as
a
senior
member
of
the
President’s Automotive Task Force with principal responsibility for the
successful restructuring of General Motors. Mr. Wilson was a partner at
Silver Point Capital, a prominent credit-oriented investment fund, before serving on the Automotive Task Force.
Additionally,
Mr.
Wilson
is
active
in
philanthropic
and
policy
initiatives.
He
recently
completed
a
Presidential
Appointment
to
the
Advisory Committee of the Pension Benefit Guaranty Corporation and serves on the
board of two non-profit organizations: Youth, INC and The Hellenic
Initiative. Mr. Wilson has an A.B. in government, with honors, from Harvard
College and an MBA from Harvard Business School. Throughout his career, Mr.
Wilson has worked with companies as an investor, a Board member, and an advisor, to address
capital allocation strategies and to substantially enhance operational efficiencies.
This experience includes significant time and effort building consensus among
management teams, directors, investors and employees to drive major
improvements. For these reasons, we believe Mr. Wilson is exceptionally
well-qualified to serve as a director of the Company. |