In ending his war on Sotheby’s management, Third Point’s Daniel Loeb got even more than three board seats and key committee appointments that he had sought (reported by me here).
He also extracted a written commitment from Sotheby’s to reimburse Third Point for “up to $10 million” in “out-of-pocket, documented expenses,” incurred in connection with the battle. That amount, added to Sotheby’s own $5.7 million in expenses related to its attempt to ward off Loeb’s unwanted advances, brings the potential cost to the auction company for this sorry episode to a hefty $15.7 million (a figure I had cited here).
That’s not an auspicious start for “enhanc[ing] long-term value on behalf of all shareholders”—-Loeb’s goal, as expressed in this press release announcing the agreement.
I had overlooked this reimbursement provision in the settlement agreement that was forged earlier this week. But I spotted it in the Form 10-Q quarterly report filed today by Sotheby’s with the SEC and posted on Sotheby’s website after the conclusion of today’s conference call with stock analysts.
The 10-Q report also provides details on the dollar value of guarantees provided by Sotheby’s to consignors of important works:
As of May 1, 2014, Sotheby’s had outstanding auction guarantees totaling $284.7 million [emphasis added] and, as of that date, Sotheby’s financial exposure was reduced by risk- and reward-sharing arrangements [i.e., third-party guarantees] totaling $88.2 million.
Each of the auction guarantees outstanding as of May 1, 2014 had a minimum guaranteed price that was within the range of the presale auction estimates for the underlying property. The property related to these auction guarantees is being offered at auctions primarily in the second quarter of 2014. As of May 1, 2014, $56.4 million of the guaranteed amount had been advanced by Sotheby’s.
Sotheby’s current credit agreements impose a $300-million cap on “net outstanding auction guarantees” (the value of the guarantees after deducting the impact of related risk- and reward-sharing arrangements, such as third-party guarantees).
One of the analysts on today’s conference call wanted an update on the current status of possible plans to monetize Sotheby’s real estate holdings. He was told that the discussions on that are still continuing.
Here’s what the 10-Q says on that subject:
Management initiated a review of Sotheby’s real estate holdings in 2013, including a review of the York Property [its New York headquarters] that began in the second quarter, and a review of its New Bond Street premises [in London] that began in the third quarter.
As a result of the review of the York Property, management concluded that Sotheby’s business does not require the full square footage of the building and is evaluating relocation [emphasis added] as well as alternatives under which Sotheby’s would no longer occupy a portion of the York Property.
Any future action relative to the York Property will only be taken after fully assessing all financial costs, including any potential lease costs and associated leverage, as well as operational challenges, and concluding that the incremental benefit will be meaningful and lasting, especially in consideration of the cyclical nature of Sotheby’s business.
Management expects to choose a course of action with respect to the York Property shortly and commence execution.
There are a lot more uncertainties about Sotheby’s future than how much its star Matisse will bring tonight.