Sotheby’s sudden cryptic announcement Friday that Tobias Meyer had jumped (or was pushed) from his long-time perch as the firm’s contemporary art head is the latest (and, because of Meyer’s high profile, the most shocking) of a several major management changes (as well as a sweeping, ongoing Review of Capital Allocation and Financial Policies) that have roiled the auction house since activist investors started nipping at its heels.
On page 49 of Sotheby’s Form 10-Q Quarterly Report (filed with the SEC on Nov. 12, ten days before the Meyer announcement), the auction house cited this as among the “Risk Factors” that could affect its business:
The loss of key personnel could adversely impact Sotheby’s ability to compete.
Sotheby’s is largely a service business in which the ability of its employees to develop and maintain relationships with potential sellers and buyers of works of art is essential to its success. Moreover, Sotheby’s business is unique, making it important to retain key specialists and members of management [emphasis added]. Accordingly, Sotheby’s business is highly dependent upon its success in attracting and retaining qualified personnel.
As I predicted in my post (linked at the top of this post) on Friday’s bombshell announcement, Meyer’s unceremonious exit has indeed sparked “fervid speculation” about what this unexpected development could mean. I’ve read and heard all kinds of suggested explanations, from the obvious (contemporary art has underperformed at Sotheby’s compared to Christie’s results; investor pressure calls for some action on that issue) to the sensationalistic (unsubstantiated conspiracy theories).
Even Carol Vogel of the NY Times seemed confused. The hardcopy version of her Meyer report (which arrived at my front door on Saturday) states: “On Friday, Mr. Meyer resigned [emphasis added].”
But while not flagging this as a correction, the Times changed the online version of the same paragraph in Vogel’s article to read: “The company announced that Mr. Meyer was leaving by mutual decision [emphasis added].”
Confusion and rumors are the predictable fallout from what appears to have been a carefully crafted statement by CEO Bill Ruprecht (probably signed off on by Meyer) which, by its terse nature, made this sound like a less-than-amicable divorce (shades of the Rupert/Wendi Murdoch divorce pronouncement about “mutual respect”):
With Tobias’ contract soon expiring, we all agreed it was time to part ways. We wish Tobias nothing but good fortune.
With no one yet in the wings to replace Meyer as worldwide contemporary art head, this “loss of key personnel” could indeed (as stated in the above-quoted “Risk Factor”) “adversely impact Sotheby’s ability to compete.” To restore buyer-and-seller confidence in its performance in the all-important contemporary arena, the auction house needs to fill this gaping hole with a distinguished, resourceful rainmaker.
Maybe they’re working on it, but this development came too suddenly for them to get all their ducks in a row. As I reported in the update to my previous post, however, the auction firm currently says it “has no plans to fill” Meyer’s position.
Another “Risk Factor” cited by Sotheby’s in its November Form 10-Q Quarterly Report is this (on P. 50):
A small number of our stockholders may ultimately impact our business.
As of September 30, 2013, management believes that two of Sotheby’s top stockholders [my link, not theirs] control approximately 16% of Sotheby’s Common Stock. These two significant stockholders, either individually or acting together, may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
And there’s another growing risk: As reported on P. 20 of the above-linked Form 10-Q, Sotheby’s has been upping the total amount of its guarantees—the sums that the auction house agrees to pay consignors, regardless of whether bidding reaches the level of the works’ guaranteed price. Guarantees, which totaled a whopping $319.6 million on Sept. 30, 2008, had been cut sharply after that year’s market crash, but have been inching back up.
Here’s what the latest quarterly report says about guarantees:
As of November 7, 2013, Sotheby’s had outstanding auction guarantees totaling $206.4 million [emphasis added]. As of November 7, 2013, Sotheby’s financial exposure under these auction guarantees is reduced by irrevocable bids totaling $54 million. Each of the outstanding auction guarantees has a minimum guaranteed price that is below or within the range of the pre-sale auction estimates for the underlying property. The property related to these auction guarantees will be offered at auctions in the fourth quarter of 2013. As of November 7, 2013, $93.4 million of the aggregate guaranteed amount had been advanced by Sotheby’s.
With the big fall sales behind it, Sotheby’s now has some breathing room to get its embattled house in order. We (not to mention the activist investors) eagerly await the results of its review of capital allocation and financial policies. As revealed during Sotheby’s third-quarter earnings conference call with securities analysts, “the Board of Directors has pledged to share the results of that examination with shareholders in early 2014.”
Sotheby’s appears to be at a crossroad. Where it’s going, though, is anyone’s guess.