DEFA14A 1 d707681ddefa14a.htm DEFA14A DEFA14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

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SOTHEBY’S

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April 2014
Forward-looking
Statements:
This
presentation
contains
certain
“forward-looking
statements”
(as
such
term
is
defined
in
Company.  See Statement on Forward-Looking Statements in the Appendix to this presentation.
the
Securities
and
Exchange
Act
of
1934,
as
amended)
relating
to
future
events
and
the
financial
performance
of
the


2
AGENDA
Summary Observations
Sotheby’s Is a Market Leader with Outstanding Results Driving Superior
Shareholder Returns
Sotheby’s Capital Allocation Strategy Creates and Delivers Long Term
Value to Shareholders
Sotheby’s Has the Right Board and Leadership to Deliver Shareholder
Value Now and into the Future
Third Point Has Made No Case That Change Is Warranted; Mr. Loeb’s
Slate Adds No Incremental Relevant Expertise to Your Board


SUMMARY OBSERVATIONS


4
OVERVIEW OF SOTHEBY’S
Financial Services
(2% of Revenues)
Agency                                                           
(93% of Revenues)
Key Facts
High value market maker in the art and
collectibles market place, adding value
through expertise
Matches buyers and sellers through
the auction or private sale process
Expertise in valuing art and relationships
create opportunities to provide liquidity to
clients
Provides art owners with financing secured
by works of art, through near-term auction
advances and general purpose term loans
SFS supports activity in the core Agency
business and generated ~10% of Sotheby’s
Agency auction sales during past 5 years
Unique market position and
relationships create attractive
investment opportunities
Directly purchases and resells works of
art
Includes retail wine sales
Revenues by Region¹
Three Business Segments
Note: Percentages do not add to 100% due to Other revenue and rounding.
¹
Revenue by region based on auction sale location.
Sotheby’s Is the Only Publicly Traded Investment Opportunity
in the Art Market and Has No Relevant Public Market Comparables
Revenues by Category
United
States
41%
U.K.
27%
China
18%
France
5%
Switzerland
5%
Rest of
World
4%
Other
Paintings
9%
Old Masters
4%
Contemporary
27%
Impressionist
22%
Asian
17%
Other
11%
Jewelry
10%
Strong Prospects for Growth
o
90 locations in 40 countries
o
9 auction sales rooms around the world
o
Received bids from over 100 countries in 2013
Industry Leader with Global Presence
o
One of only two global auction franchises and the fastest
growing auction house in 2013 and Q1 2014, following a
diversified path to growth
o
Global, enduring brand serving high net worth individuals
o
No company better positioned as wealth creation leads to
additional collectors
Principal
(4% of Revenues)


5
HISTORY OF DELIVERING SHAREHOLDER VALUE
One Year TSR
Five Year TSR
Ten Year TSR
Source: Bloomberg; market data as of April 4, 2014
Note: Ten year TSR for S&P Global Luxury Index is indexed as of June 30, 2005, when the index began trading
Sotheby’s Has Outperformed All Relevant Indices
Over the Past One, Five and Ten Year Periods
S&P Global
Luxury Index
S&P Midcap
Russell 3000
23%
23%
29%
36%
153%
181%
264%
352%
109%
157%
150%
305%


6
RECENT BOARD & MANAGEMENT ACCOMPLISHMENTS
Expanded into key emerging markets with attractive dynamics and growth potential
New
offices
and
gallery
spaces
in
key
markets
-
Beijing,
Moscow,
Istanbul,
Doha,
S
2
Gallery
in
London
New clients generated approximately one-third of 2013 transaction volume
Private sales of art, now one of Sotheby’s most successful channels
o
Private sales of $1.2 billion in 2013, a 30% increase from 2012
Growth of art-related financial services business
o
Average loan portfolio of $434 million in 2013 (+180% vs. 2009 average loan portfolio)
Major
investments
in
digital
strategy,
including
the
BIDNow
online
bidding
platform,
which
saw
a
21%
increase in transactions by clients in 2013
Implemented new Capital Allocation and Financial Policy Plan
o
$300 million special dividend in March 2014
o
Commenced $150 million share repurchase program
o
Evaluating
near-term
capital
return
from
the
loan
book
and
real
estate
(New
York
headquarters
and
UK New Bond Street flagship property)
Began process of debt-financing loans that are eligible collateral under the new SFS ABL, with
a significant level of new loans now meeting 20%+ ROE threshold target
o
New framework for annual return of any excess capital
o
Framework for evaluating investments (15% ROIC target rate in the Agency business and 20% ROE
target in the Financial Services business)
Increased
Global
Footprint
Expansion
Across
Multiple
Channels
Efficient
Capital
Allocation
Board and Management Maintain a Keen Focus on Delivering Shareholder
Value Through Growth Opportunities and Prudent Capital Allocation
|


THIRD PARTIES ARE SUPPORTIVE OF SOTHEBY’S
Recent Commentary Has Acknowledged Sotheby’s
Strong Performance in Key Collecting Categories and Regions
But Sothebys is no slouch in China, despite Loebs suggestion to the contrary.
Like
Christie’s, it now runs sales in the PRC. And its record in Hong Kong is illustrious. Including
auctions there, in Beijing and globally, the companys Asian art sales increased 50
percent in 2013, faster than at Christie’s.
-
January 22, 2014
“We Believe BID Has a Balanced Approach to Market Share —
In our view, BID is
balancing optionality to go after market share with stronger revenues at the expense of
margins, or to focus the business on profitable growth with a less aggressive revenue
approach…we believe the current focus on greater profitability is more prudent for
BID, & for shareholders.”
-
March 6, 2014
7
-
February 6, 2014
Sotheby's and Christie's. Sotheby's remains our top stock pick.
Record
London
Impressionist
Art
evening
sale
results
and
demand
was
exceptionally
robust
across
most
lots
The
art
cycle
is
still
going
strong
as
evidenced
by
recent
results
at
.


8
EFFECTIVE LEADERSHIP AND STRONG GOVERNANCE
FOCUSED ON LONG TERM VALUE CREATION
Independent Board with strong business leaders
Robust Lead Independent Director role
Directors with relevant experience and expertise across sectors and companies
Addition of new directors balances institutional knowledge with new perspectives
Majority
vote
standard
in
uncontested
elections
to
promote
Board
accountability
Strong shareholder engagement program, including specific guidelines to support direct
communications between shareholders and Board members
Ongoing commitment to return capital to shareholders
Close alignment of performance and pay
“360-degree”
evaluations in the Board’s assessment of both individual director
performance and the contributions of Board committees


9
CONSISTENT HISTORY OF SHAREHOLDER ENGAGEMENT
Sotheby’s has a long track record and culture of proactive and open dialogue with its shareholders
Consistent with this philosophy, Sotheby’s promptly sought meetings with Marcato Capital 
Management and Third Point soon after each announced major holdings
Sotheby’s proactively sought input from its shareholders during the development of the Capital
Allocation and Financial Policy Review (CAR)
o
Upon initiating the CAR, members of Sotheby’s management reached out to top shareholders to
discuss the process and solicit feedback
o
In
particular,
Sotheby’s
reached
out
to
both
Marcato
Capital
Management
and
Third
Point
to
offer
an opportunity to sign an NDA, see advanced drafts of the CAR and offer their input and advice
o
Sotheby’s
briefed
Marcato
and
Third
Point
on
the
preliminary
conclusions
of
the
review
and
considered each investor’s feedback in the development of the final framework
o
In late January, Sotheby’s published the results of the CAR and again reached out to top
shareholders to review the materials
Throughout 2014, Sotheby’s continued its engagement with Marcato on the Company’s approach to
capital allocation and return
Sotheby’s has also maintained an active dialogue with Third Point, and in early 2014 offered Dan Loeb
a board seat in an attempt to reach a settlement and avoid a distracting proxy contest
Sotheby’s Has Consistently Engaged In an
Active and Open Dialogue with Shareholders


10
SOTHEBY’S BOARD IS COMMITTED TO PURSUING
THE
BEST
INTERESTS
OF
ALL
SHAREHOLDERS
Sotheby’s held numerous discussions with Third Point to learn and understand its views
Sotheby’s entered into a non-disclosure agreement with Third Point in January 2014 to discuss
Capital Allocation and Financial Policy Review
Before Sotheby’s announced the Capital Allocation and Financial Policy Review results, Mr. Loeb
indicated to management that he supported the plan and thought it was well done
Sotheby’s offered Mr. Loeb a Board seat and membership on three key board committees to reach a
resolution and avoid a costly and disruptive proxy contest and Mr. Loeb indicated he was inclined to
accept the offer
However, Mr. Loeb abruptly launched his proxy campaign in the midst of constructive dialogue,
casting doubt on his ability to work effectively as a Board member
The
Board
has
concluded
that
Mr.
Loeb
and
his
nominees
would
add
no
incremental,
relevant
skills,
experience or expertise to the Sotheby’s Board
The Board is concerned Mr. Loeb and his nominees would be advocates only for Mr. Loeb’s interests
rather
than
those
of
ALL
shareholders
based
on:
o
Mr. Loeb’s behavior with Sotheby’s and the fact that he has not articulated any reason for change
o
His history as a short time Board member at other companies
o
The self-interested transaction he executed to sell shares back to Yahoo!


SOTHEBY’S IS A MARKET LEADER WITH OUTSTANDING
RESULTS DRIVING SUPERIOR SHAREHOLDER RETURNS


12
SOTHEBY’S HAS DELIVERED STRONG FINANCIAL PERFORMANCE
Consolidated
Sales:
$6.3
billion
Aggregate
Auction
Sales:
$5.1
billion
Revenues:
$854 million
Revenue
Growth:
11.1%
EBITDA:
$245 million¹
EBITDA
Margin:
28.7%¹
Financial
Services
Loan
Portfolio:
$474
million
Loan
Portfolio
Growth:
11.6%
Market
Valuation
Financial
Performance
(2013)
Share Price:
$42.89
Market
Capitalization:
~$3.0
billion
10 Year TSR:
305%
Source: Bloomberg and company filings; market data as of April 4, 2014
Note: Balance sheet data as of 31-Dec-2013
¹
EBITDA and EBITDA Margin are non-GAAP measures. See non-GAAP reconciliation in the Appendix to this presentation.
Capital
Return
Regular
Quarterly
Dividend:
$0.10
Special
Dividend:
$4.34
(paid
March
17)
Share
Repurchases
(year-to-date):
$25
million
Commitment to return excess capital to
shareholders annually


13
VIBRANT AND GROWING GLOBAL ART MARKET
The global art market was estimated at $64 billion in 2013, up from $36 billion in
2001, an approximately 80% increase
In 2013, the combined auction sales of Sotheby’s and Christie’s reached $11.0
billion, up from $5.9 billion in 2003
An annual growth rate of approximately 6% over the 10 year period
Source: TEFAF Art Market Report 2014 and 2002
Note: Art market figures converted from euros to dollars at 1.35.
$15.4 billion
$12.8 billion
$3.8 billion
$24.3 billion
Sotheby’s Platform and Footprint Designed to
Reach All Key Channels and Regions in a Growing Market
Global Art Market
$64 billion
Auction Sales
$11 billion
The
private
sales
market
is
currently
estimated
at
approximately
53%
of
the
global art market, which approximates historic levels
Private Sales
53% of Art Market
Sales by Key Country
United States
China
England
France


14
UNIQUELY POSITIONED TO CAPTURE OPPORTUNITY
FROM CONTINUED WEALTH ACCUMULATION
Global Ultra High Net Worth
Population Is Growing …
Creating Tremendous Business
Opportunities that Sotheby’s is Seizing
Significant growth forecasted from 2013 to
2023,
with particularly robust growth within
new markets covered by Sotheby’s global
footprint
Ultra high net worth population has grown
59% over last decade
In 2007-2012, even through the financial
crisis, high net worth individual investable
wealth grew at 2.6% CAGR, above 1.6%
GDP CAGR
Asia
Sotheby’s is uniquely positioned to capture
this opportunity due to deep expertise,
longstanding relationships, and strength of
brand across the art world
+43%
Latin America
+42%
Middle East
+35%
Source: Knight Frank, The Wealth Report 2014.
o
Private Sales.
In-depth knowledge of
owners and keen ability to connect
them with interested buyers
o
Geographic Growth.
Expansion into
key markets across the world,
including emerging markets in Asia,
the Middle East, Russia and Latin
America
o
Contemporary Art.
Record auction
results in 2013 supported by significant
market expertise and experience


15
RAPID EXPANSION AND PRESENCE IN GROWING ASIAN MARKET
Over the last five years, the Chinese art market has been the fastest
growing
art
market
in
the
world,
reaching
$15
billion
in
2013
The emerging Chinese art market presents new opportunities to drive
global sales by engaging and educating a growing population of wealthy
collectors
In September 2012, Sotheby’s became the first international auction
house to establish a presence in Beijing
Celebrating 40 years in Hong Kong, Sotheby’s October 2013 sales
series
generated
$538
million,
the
highest
total
ever
for
any
global
auction
house
in
Asia,
and
over
100%
higher
than
the
prior
year
total
of $262 million
In December 2013, Sotheby’s first commercial auction in mainland China
raised
$37
million
and
set
a
record
for
Chinese-French
artist
Zao
Wou-Ki in Beijing
Sotheby's
Spring
Hong
Kong
sales
totaled
$438
million,
a
56%
increase over the prior year, with three works bringing over HKD$100
million and auction records for Jadeite Jewelry, Chinese Ceramics and
any Southeast Asian Artist
Source: TEFAF Art Market Report 2014
Note: Art market figures converted from euros to dollars at 1.35.


In 2013, Private Sales increased by 30% or $272.5
million and now represent nearly 20% of Sotheby’s
Consolidated Sales and 50% market share with
traditional competitor
Leverage existing expertise and knowledge to
enhance Sotheby’s Private Sales initiatives
Opened dedicated private sales galleries in New
York, London and Hong Kong
Approximately 215%
Growth in Private
Sales
since
2008
(~26% CAGR)
Over the Past Several Years Sotheby’s Has Dedicated Significant Management
and Specialist Talent to the Rapidly Growing Private Sales Arena
RAPIDLY EXPANDING PRESENCE IN THE PRIVATE SALES MARKET
16


Countries that participated in Sotheby’s Contemporary Art sales last year
SOTHEBY’S EXCELLENCE IN CONTEMPORARY ART
~$381m
200%
13
67
26
34%
11
Total sales at the November
2013 Evening Sale, the highest
ever in Company history
Increase in activity among Asian
collectors in Sotheby’s Contemporary
Art sales last year
Contemporary works over $20 million
sold at auction in 2013, nearly double
the 2012 figure
Contemporary specialists with a
decade or more at Sotheby’s
Buyers in Sotheby’s 2013
Contemporary sales participating for
the first time
Consecutive Contemporary Art
Evening Auctions with a sell-through
rate exceeding 80%
Sotheby’s
Contemporary
Art
Sales
Have
Increased
by
528%
Over
the
Last
Ten
Years
17
Sotheby’s Commands a Large Share of the Contemporary Art Market and Continues
to
Win
Many
of
the
Most
Sought
After
and
Profitable
Works
of
Art
in
This
Space
Andy Warhol, Silver Car Crash
(Double Disaster)
Sold at Auction in 2013 for $105.5mm
Mark Rothko, No 1
Sold at Auction in 2013
for $75.1mm


Sotheby’s BIDnow™
live auction platform enables bidders to participate in
auctions from anywhere, at any time and on nearly any smart device
Audubon’s ‘Birds of America’
achieved new record for online purchase in a live
Sotheby’s auction at $3.5 million
Continuous
enhancement
of
BIDnow™
drove
significant
increase
in
client
usage
in 2013 including:
o
45%
increase
in
online
bidding
vs.
2012
o
50%
increase
in
Asian
client
traffic
o
25%
increase
in
time
spent
on
mobile
devices
BIDNow™
regularly registers bids over $1 million
In 2013, 33% of online bidders were new to Sotheby’s
In the last year, digital delivery tripled the distribution of catalogues
Sotheby’s actively engages across social media platforms to attract and retain
clients
Original content –
a key differentiator –
is read by clients in more than 180
countries
Sotheby’s is aggressively exploring collaborations and additional innovations to
expand our digital business
In 2013, Sotheby’s Achieved a 45% Increase in Online Bidding Through the
Company’s BIDnow™
Platform Regularly Registering Bids Exceeding $1 Million
82,500+
Followers
33,000+
Followers
17,500+
Followers
57,500+
Followers
SUCCESSFUL STRATEGY FOR DIGITAL CLIENT ENGAGEMENT
ACROSS ONLINE AND SOCIAL MEDIA PLATFORMS
Significant Investment in Digital Strategy to Increase
Global Client Engagement and Build New Audiences in Key Markets
18


SOTHEBY’S CAPITAL ALLOCATION STRATEGY CREATES AND
DELIVERS LONG TERM VALUE TO SHAREHOLDERS


Upfront Capital
Return (March 2014)
Distributed excess available cash to
shareholders via a special dividend
of $300 million paid in March 2014
$25
million
accelerated
share
repurchase completed in March
2014
SOTHEBY’S ONGOING COMMITMENT TO CREATE LONG TERM VALUE
AND RETURN CAPITAL TO SHAREHOLDERS
Near-Term
Initiatives
Loan
Book
Began process of debt-financing
loans that are eligible collateral
under new SFS ABL
Significant level of new loans now
meeting 20%+ ROE threshold
target
A majority of ~$150-200 million to
be available by March 2015
Ongoing Value Creation
and Return of Capital
Note: See Statement on Forward-Looking Statements in the Appendix to this presentation.
Initial Return + Potential Near Term Capital Return from Loan Book and Real Estate + Annual Return of Excess
Capital = Meaningful Long Term Value Creation and Return for Shareholders
20
Annual return of excess
capital primarily via a special
dividend
Annual share repurchases
primarily to offset employee
stock dilution
Disciplined investments in
growth opportunities
Near-Term
Initiatives –
Real Estate
York Avenue Headquarters
Review process to
conclude in 2014
UK flagship New Bond
Street review
underway


Consider prudent leverage targets for the Company’s core Agency business (adjusted debt
to EBITDA of 3.5x to 4.0x through-the-cycle)
Assess and recalibrate sources and uses of capital reserves / liquidity annually, taking into
account relevant changes in the business
Target a minimum of 15% ROIC on growth opportunities (20% ROE for Sotheby’s Financial
Services) and allocate capital to initiatives that provide an appropriate rate of return
Execute annual share repurchase program primarily to offset employee stock dilution
All excess capital will be returned to shareholders primarily via annual special dividends
FRAMEWORK FOR RETURNING CAPITAL TO SHAREHOLDERS
Through Our Capital Allocation and Financial Policy Review Process, We
Have
Established
Key
Principles
to
Determine
Amounts
and
Process
for
Returning
Excess Capital to Shareholders on an Ongoing Basis
Note: EBITDA is a non-GAAP measure. Adjusted Debt to EBITDA would reflect typical ratings agency adjustments to both debt and EBITDA for debt-like items, such as underfunded
pensions and operating leases.
Any special dividend will be disclosed in conjunction with the release of full year results
and paid shortly thereafter
Management retains flexibility to review appropriate means for returning capital to
shareholders (e.g. special dividends vs. share repurchases)
1
2
3
4
5
21


22
FRAMEWORK FOR EVALUATING INVESTMENTS
Threshold Test.
o
15% return on invested capital threshold over the life of the investment.  Investment
opportunities must strengthen the core Agency business or provide unique opportunities
to expand into adjacencies
o
20% return on equity threshold for Sotheby’s Financial Services
Basis
for
Thresholds.
The
threshold
ROIC
rate
is
based
on
an
approximation
of
Sotheby’s
weighted average cost of capital over time
Capital
Allocation
Decision.
Investments
that
meet
the
thresholds
will
be
evaluated
further
and capital will be allocated to those projects offering the highest risk-adjusted returns
Sotheby’s Will Evaluate Potential Investments
According to a Targeted Return Requirement


“The review undertaken looks thorough…concluded that the firm’s art auction
and private sales business should be funded separately from its art lending
activities. Using more outside leverage for the finance side will help release cash
to pay the dividend...its all rational and laid out with unusual clarity, which
pleased analysts on Wednesday’s conference call.
-
January 29, 2014
We are impressed with BIDs new plan which we believe thoughtfully
separates BID’s Agency & Financial Services businesses, adds leverage to
each, and specifies BID’s commitment to return capital to shareholders
primarily via Annual Special Dividends.”
-
January 29, 2014
“We believe this was a good step (the company is becoming more
shareholder-focused and more transparent)
-
January 29, 2014
SOTHEBY’S RECEIVED WIDESPREAD PRAISE REGARDING
THE RESULTS OF THE CAPITAL ALLOCATION REVIEW
In
Conversations
With
Management,
Mr.
Loeb
Characterized
the
Company’s
Capital
Allocation
and
Financial
Policy
Plan
as
the
“Right
Approach,”
Striking
a
Balance
Between
Returning
Capital
to
Shareholders
and
Continuing
to
Invest
in
the
Business
23


SOTHEBY’S ONGOING COST STRUCTURE REVIEW & PROGRESS
Sotheby’s Annual Planning Process Identified Opportunities for
Savings of $22 million in 2014, Equivalent to ~10% of 2013 Operating Income
Expects
to
reduce
professional
fees
by
approximately
$9
million,
or
15%,
in
2014
Note: Savings of $22 million in 2014 includes reduction of direct costs of auction services that would equate to $5 million in savings based on a similar level of Net Auction Sales as
2013.
Professional
Fees
Reduce
marketing
expenses
by
approximately
$4
million,
or
17%,
in
2014,
reflecting a more targeted approach to spending on core strategic priorities
Other General
and
Administrative
Expenses
Spending
reductions
of
approximately
$4
million
across
other
categories
of
general and administrative expenses
Direct Costs
of Auction
Services
Reduce
direct
costs
of
auction
services
as
a
Percent
of
Net
Auction
Sales
by
approximately
10
basis
points
in
2014
Marketing
Expenses
Cost
Saving
Is
a
Priority
and
the
Board
and
Management
Have
Made
Significant
Progress to Date and Will Vigorously and Continuously Pursue Additional Efficiencies
24


Behind the Sotheby’s brand is a 270 year history of providing
exceptional service to clients worldwide through art, auctions, real
estate and more
The Sotheby’s brand connotes a reputation of expertise, credibility,
trust and prestige
In addition to core auction, financial services, and private sales
business, the Sotheby’s brand has also been applied to:
o
Sotheby’s International Realty through a licensing agreement
o
High-end retail wine sales
o
Diamond retail sales
o
Sotheby’s Institute of Art, which continues to expand its global
presence and relevance in key art markets
o
Sotheby’s Imprint, which offers print management and distribution
services for premiere brands
In 2013, Domenico De Sole joined as Lead Independent Director, with
luxury brand expertise from his time at Tom Ford and Gucci
In 2014, Alfredo Gangotena joined as Chief Marketing Officer, with an
accomplished record of defining, managing and promoting global
brands such as MasterCard Worldwide, Hutchison-Priceline, and
Henkel Group
25
Sotheby’s is Enormously Protective of the Brand and Carefully Evaluates Brand
Usage
Opportunities
Against
the
Potential
Value
and
Risk
to
the
Overall
Business
SOTHEBY’S IS ONE OF THE MOST
RECOGNIZED LUXURY BRANDS IN THE WORLD


26
Investment Opportunities
Increased investment in private sale initiatives
Increased loan portfolio at Sotheby’s Financial Services
Opportunistic principal activities
Expansion into new collecting categories
Further investment in emerging markets
Continued expansion of digital engagement
Leverage Sotheby’s brand in complementary products or
Pursue Opportunities that Strengthen the Core Agency Business;
Increase Exposure to Fast Growing New Markets;
Expand the Breadth and Profitability of the Sotheby’s Brand
services
STRATEGY FOR CONTINUED GROWTH


SOTHEBY’S HAS THE RIGHT BOARD AND LEADERSHIP TO
DELIVER SHAREHOLDER VALUE NOW AND INTO THE FUTURE


28
CONSISTENT HISTORY OF SHAREHOLDER ENGAGEMENT
AND SHARP FOCUS ON DELIVERING VALUE
Sotheby’s Board and Management Have Demonstrated a Long, Unwavering
Commitment to Shareholder Value and Shareholder Engagement, and Continue to
be Responsive to Feedback
Shaped in 2013 with input solicited from a number of investors
After results were announced early in 2014, Sotheby’s again engaged top
shareholders, who provided positive feedback on framework and policy
Capital
Allocation
Review
Executive
Compensation
Corporate
Governance
In 2013, Sotheby’s solicited feedback from investors on executive
compensation
and
made
significant
changes
to
improve
the
program
and
address shareholder concerns
Engaged in substantial outreach to the majority of shares outstanding
Continuous review and enhancement of governance guidelines, including
recent changes to support direct communication between shareholders and
Board members
A Board focused on constant renewal and improvement, including “360
degree”
director evaluation, with a balanced set of experience and skills
relevant to our business and building shareholder value


29
SOUND CORPORATE GOVERNANCE POLICIES AND PRACTICES
Independent Board with New Perspectives
Sound Governance Practices
Recently Enhanced Corporate Governance Guidelines
¹
Source: Spencer Stuart Board Index 2013
²
Source: Wall Street Journal
Robust Lead Independent Director role; new Lead Independent Director, Domenico De Sole, was appointed in December 2013
Average
tenure
of
~7.1
years
versus
an
average
of
~8.6
years
for
the
S&P
500¹
and
~10.8
years
for
the
S&P
1500²
Board members recognized as respected leaders in their fields
Annually elected directors
Majority vote standard for election of directors
Majority vote standard to amend bylaws/charter and approve M&A transactions
Engage regularly with shareholders and seek feedback
shareholders and facilitating director evaluations
Mandatory retirement guidelines for non-management directors
Guidelines to support direct communication between shareholders and members of the Board
Updated director stock ownership guidelines to require periodic review
Revisions to executive compensation program intended to make equity awards more long term focused
“360 degree”
evaluation in the Board’s assessment of both individual directors and Board committees
Sotheby’s Is Committed to Effective Independent Board Leadership and
Governance Practices Focused on Shareholder Value Creation
10
of
12
directors
are
independent;
five
new
independent
directors
will
have
been
added
since
2011
Expanded
responsibilities
Director,
codifying
practices,
including
existing
of
Lead
Independent
on
engaging
with


30
BOARD WITH DISTINCT KNOWLEDGE AND EXPERTISE
CRITICAL TO THE COMPANY’S SUCCESS
12 Highly Qualified Directors; 10 Independent Directors;
5 Will Have Been Added Since 2011
Jessica Bibliowicz
Former Chairman and 
Chief Executive 
Officer of National 
Financial Partners
Domenico De Sole
Chairman of Tom Ford 
International
The Duke of Devonshire
Chancellor of the 
University of Derby
Daniel Meyer
President of Union 
Square Hospitality Group 
(incl. Shake Shack and 
Union Square Café)
Allen Questrom
Former CEO of 
Federated Department 
Stores, Neiman 
Marcus, Barney’s and 
J.C. Penney
Marsha E. Simms
Partner at Weil, Gotshal 
& Manges until 
retirement in 2010
Diana L. Taylor
Former Superintendent 
of Banks of New York 
State
Dennis M. Weibling
Managing Director of 
Rally Capital and 
Former President of 
Eagle River
Note: Shading indicates new directors since 2011. Jessica Bibliowicz and Kevin Conroy are new nominees in 2014.
John M. Angelo
Chief Executive Officer 
of Angelo, Gordon & 
Company
Kevin Conroy
President of Univision 
Interactive and 
Enterprise 
Development
Robert S. Taubman
Chairman, President and 
CEO of Taubman Centers
Member, University of 
Michigan Investment 
Advisory Committee
William F. Ruprecht
President and Chief 
Executive Officer of 
Sotheby’s


31
Law
Banking
Digital, Media, Advertising,
Communications and Marketing
Leading and profitably growing
public and private companies
(Current / Former CEOs)
Experience in key growth
markets for Sotheby’s
SOTHEBY’S BOARD HAS UNIQUE, BROAD AND
COMPLEMENTARY RANGE OF EXPERTISE AND CAPABILITIES
Sotheby’s Current Board Has the Relevant Experiences and Qualifications
Necessary to Continue to Deliver Effective and Independent Oversight and Direction
Art World Relationships
Capital Markets
High-End Luxury Goods
Real Estate
Client Service
International Management
Corporate Governance
Entrepreneurship
Capital Allocation
Value Creation
Money Management


32
SOUND COMPENSATION PRACTICES
SHAPED BY A RESPONSIVE BOARD
Sotheby’s Board Proactively Engages with Shareholders and
Provides Solutions to Address Shareholder Concerns
After
last
year’s
annual
“say-on-pay”
vote,
the
Compensation
Committee
led
a
thorough
review of pay practices and CD&A disclosure
Our Compensation Committee engaged in substantial outreach to Sotheby’s largest
shareholders, who represented more than the majority of shares outstanding, to fully understand
shareholder concerns and solicit input on Sotheby’s pay practices
Our Compensation Committee worked intensively with independent compensation experts
Semler Brossy on a top-to-bottom review, with shareholder comments integral to the process
In response to shareholder feedback, Sotheby’s Compensation Committee took the following
actions:
Expanded disclosure on performance measures, calculation of Sotheby’s incentive
compensation pool, market check for compensation decisions, and individual incentive payout
rationale
Eliminated retesting for long term incentive grants
vest of long term awards rather than annual vest
Modified executive equity award structure to be more long term focused with three-year cliff


33
SOTHEBY’S SHAREHOLDER RIGHTS PLAN
Sotheby’s
shareholder
rights
plan
is
shareholder
friendly
One-year term automatically expiring in October 2014
Shareholder approval is required to extend rights plan beyond October 2014
Permits passive investors to accumulate as much as 20%
Does not apply to majority-approved third-party bids to acquire the whole company
The
shareholder
rights
plan
is
an
important
tool
to
ensure
ALL
Sotheby’s
shareholders
are
treated 
fairly, including in the context of rapid accumulations by 13D filers and certain short-term focused
holders
Allows the Board and shareholders time to make informed judgments after considering the interests of all
shareholders
Sotheby’s
Board
and
Management
View
the
Shareholder
Rights
Plan
as
an
Important
Tool
to
Ensure
ALL
Shareholders
Are
Treated
Fairly;
Mr. Loeb Has Made Clear That He Seeks Relief from the Rights Plan to Buy Shares
with Votes After the Record Date in Order to Win the Proxy Contest
“To win a proxy battle, Third Point would start with the 10% it can vote, but for the remainder of their
vote they would need to convince their fellow stockholders…if activists can’t do that without
acquiring more voting power for themselves, then it seems to me they are essentially admitting that to
win they need the very elements of control–without paying a control premium–which the pill is
legitimately designed to prevent being bought at a bargain price.”
-
Wall Street Journal, 01-April-2014


THIRD POINT HAS MADE NO CASE THAT CHANGE IS WARRANTED;
MR. LOEB’S SLATE ADDS NO INCREMENTAL RELEVANT EXPERTISE
TO YOUR BOARD


35
SUMMARY OF INTERACTIONS WITH THIRD POINT
Between August 2013 and February 2014, Board members and management had six in-person
meetings and numerous conference calls with Mr. Loeb
Offered to allow Mr. Loeb to review our capital allocation plan in depth if he agreed to a non-disclosure
agreement
in
January
2014;
he
agreed
and
indicated
to
management
that
he
supported
the
plan
and
thought it was well done
During
discussions
with
members
of
the
Board
and
management,
Mr.
Loeb
reiterated
his
desire
to
join
the Board
Mr.
Loeb
also
expressed
that
he
was
“willing
to
work”
with
Mr.
Ruprecht
Mr. Loeb also commended Sotheby’s on the Capital Allocation Review and results
Meetings
with
Management
Third Point has held shares in Sotheby’s for approximately one year
Third Point initially filed a 13D in August 2013, disclosing a 5.7% stake
In October 2013, Third Point sent an open letter disclosing a 9.3% stake and destabilizing demands:
o
Resignation of and search for new CEO
o
Addition of “several”
new directors
o
“Revamped”
strategy
Ownership
and Letter to
Board
Sotheby’s engaged in multiple discussions with Third Point in February 2014 in an effort to reach a
resolution and avoid a costly and disruptive proxy battle
Mr. Loeb was offered a seat on the Board, recognizing his ownership position and signaling an attempt
at an amicable resolution
Sotheby’s
Attempt at a
Resolution
Proxy Fight
Launch
In the midst of a constructive settlement negotiation, which your Lead Independent Director pursued
aggressively with the full support of the Board, Mr. Loeb launched an abrupt proxy contest for three
directors


36
THIRD POINT NOMINEES
Daniel S. Loeb
Mr. Loeb’s Nominees Add No Incremental Experience to the Board
Harry J. Wilson
Olivier Reza
Art/Auction Expertise:
Luxury Expertise:
Digital Media/Communications:
Client Service:
Art/Auction Expertise:
Luxury Expertise:
Digital Media/Communications:
Client Service:
Art/Auction Expertise:
Luxury Expertise:
Digital Media/Communications:
Client Service:
No experience   
Limited experience
Current
position:
CEO
of
Third
Point
LLC
Experience:
Asset
management
Public
company
board
service:
No
current
boards;
average
tenure
of
one
to
two years on previous boards
Current
position:
Chairman
&
CEO,
MAEVA
Group
Experience:
Restructuring
(notably
in
relation
to
auto
industry
bankruptcies)
Public
company
board
service:
Visteon
(auto
parts
company)
since
soon
after company emerged from bankruptcy. Served briefly as member of Yahoo!
board (nominated by Third Point) and resigned when Yahoo! repurchased
Third Point stake. Additional Third Point associations include Loeb being
among top 20 contributors to Wilson’s failed 2010 campaign for New York
State Comptroller
Current
position:
Managing
Partner
of
Myro
Capital,
providing
services
to
his
family members and associated entities including those associated with the
jewelry business of Alexandre Reza (his father)
Experience:
Most
of
career
in
investment
banking;
recently
joined
family’s
jewelry business
Public
company
board
service:
None


37
MR. LOEB’S BOARD EXPERIENCE
Company
Tenure
Overview
<1 Year
Third Point announced that it would nominate 6 directors to the Board in February
2007
Pogo agreed to expand the Board from 8 to 10 directors and appointed Mr. Loeb and
an associate to the Board on July 1, 2007
Pogo subsequently announced acquisition by Plains on July 17, 2007
~1 Year
Joined Board along with two other nominees in May 2012
Stepped down in July 2013 after negotiating a private transaction under which Yahoo!
agreed to repurchase ~40mm of Loeb’s shares
~1 Year
Loeb appointed to Board in May 2006 following proxy fight, resigned in June 2007
During that period, shares of Massey declined more than 30%, underperforming the
S&P 500 by nearly 50%; in the six months following his resignation, shares of
Massey
outperformed
the
S&P
500
by
~30%
1
1
Measured from May 16, 2006, the date of the Massey annual meeting, through June 13, 2007, the date of Mr. Loeb’s resignation letter.
Mr. Loeb’s Board Experience Highlights the Short-Term Nature of His
Representation of Shareholders as a Director


38
Company
Tenure
Overview
~1 Year
No publicly disclosed activism
Third Point was granted one Board seat
~2 Years
Mr. Loeb was appointed to the Board in December 2005 and resigned in March 2007
During Mr. Loeb’s tenure as a Board member, Ligand shares remained at
approximately
the
same
price
and
underperformed
the
S&P
500
by
~12%
1
~2 Years
Mr. Loeb had been a member of the Board of Directors of the private Company since
May 2006
Mr. Loeb disclosed a 30.4% stake in the Company on June 26, 2007, purchasing
shares
through
a
private
placement
completed
simultaneously
with
the
close
of
the
Company’s IPO on June 19, 2007
From the close of the Company’s IPO to Mr. Loeb’s resignation effective March 11,
2008, shares of Biofuel underperformed the S&P 500 by over ~40%
MR. LOEB’S BOARD EXPERIENCE (CONT’D.)
1
Measured from December 8, 2005 through March 1, 2007.
Mr. Loeb’s Board Experience Highlights the Short-Term Nature of His
Representation of Shareholders as a Director


39
THIRD POINT HAS MADE NO CASE THAT CHANGE IS WARRANTED
Independent Board with
Diverse Perspectives
10
of
Sotheby’s
12
directors
are
independent,
with
5
new
independent
directors
to
be
added since 2011
Sotheby’s Board provides unique, broad, and complementary expertise in art, luxury
goods, digital media, international business and operations
Leader in High Growth
Asian Art Market
In September 2012, Sotheby’s became the first international auction house to
establish a presence in Beijing
Celebrating 40 years in Hong Kong, Sotheby’s October 2013 sales generated $538
million, the highest total ever for any global auction house in Asia
Increased Private Sales
Private sales have increased approximately 315% since 2008 and by ~30% in 2013
alone, and represent almost 20% of consolidated sales
Leader in Contemporary Art
Auction Market
Sotheby’s Contemporary Art sales have increased by over 500% since 2003
In November 2013, Sotheby’s Contemporary Evening sale set numerous records
Robust Online Presence
45%
increase
in
online
bidding
through
the
company’s
BIDnow™
platform
Aggressively exploring opportunities for collaboration and innovation to drive future
growth in digital platform
Brand Leverage
Sotheby’s has successfully leveraged its brand for a variety of activities including retail
wine sales, retail diamond sales and realty
Focus on Cost Saving
and Efficiency
Management has identified $22 million of cost savings in 2014 and is aggressively
pursuing additional efficiencies
Board is committed to continuous cost improvement
Shareholder Friendly
Rights Plan
Shareholder friendly rights plan, with a one year term expiring in October 2014
Mr. Loeb wants relief from the rights plan to buy votes


40
MR. LOEB’S SELF-INTERESTED TRANSACTION WITH YAHOO!
Gabelli & Company -
July 23, 2013
This deal looks bad. We believe Yahoo’s aggressive share repurchase program will likely add shareholder value at current
prices and large, privately negotiated share repurchases, executed at market, are not in themselves questionable. However,
this transaction is colored by Third Point’s insider status…Moreover, Third Point is giving up its Board representation as part
of this deal, which smacks of greenmail. Why didn’t Yahoo just tender for 40 million shares and allow all shareholders to
participate? Perhaps Yahoo could have received a better price.”
Source:  Gabelli & Company Research, New York Times
New York Times -
July 23, 2013
The share repurchase has the whiff of greenmail, with Business Insiders Henry Blodget going as far as to call it insider
trading”…the sale is arguably suspect in terms of its timing. Right now, Yahoo’s valuation is floating on two pontoons. The
first and biggest driver of Yahoo’s share gains over the last few years has been its stake in the Chinese Internet
giant Alibaba Group
gaining from the unexpected Alibaba rise but not the restructuring he advocated, leaving just before things get hard
and the wave crashes. Mr. Loeb’s exit raises the question of whether he was out to create true value or merely stir
the pot to get a quick hit and $600 million in profit so far from Yahoo. Mr. Loeb’s promise at the beginning was to
provide
“all-star
directors,”
not
all-star
directors
for
about
a
year…
via a corporate stock buyback, he would have been unlikely to get the same price. In addition, the volume would have meant
that trading costs would have whittled away at some of his profit.”
…In this light, Mr. Loeb’s departure is being viewed as riding the wave of hype over Yahoo. He is
Had Mr. Loeb sold directly in the market rather than


41
SOTHEBY’S HAS THE RIGHT BOARD, LEADERSHIP TEAM AND
STRATEGY IN PLACE TO DELIVER VALUE FOR ALL SOTHEBY’S
SHAREHOLDERS NOW AND OVER THE LONG TERM
Sotheby’s Is a Market Leader with Outstanding Results
and Superior Shareholder Returns
Sotheby’s benefits from a solid financial foundation
Our Board is independent and has the strength, diversity, experience and
qualifications to continue to provide excellent oversight and continue
delivering value for shareholders
Our Board is committed to sound corporate governance practices
Sotheby’s has engaged frequently with Third Point and other shareholders,
and our Board is committed to aggressively pursuing the best interests of
ALL
Sotheby’s shareholders.  We believe shareholders should question
whether Mr. Loeb will do the same
Sotheby’s Board has concluded that Mr. Loeb’s nominees add no relevant
skills, experience or expertise that is not already effectively represented on
the Board
Through his interactions with Sotheby’s Board, Mr. Loeb has shown that
he would be a disruptive director
Your Vote Is Important -
We Encourage You to Vote Your Shares in
Support of Your Board on the GREEN Proxy Card


APPENDIX
*
*
*
*
*
*
*
*
*


43
APPENDIX –
NON-GAAP MEASURES
GAAP
refers
to
generally
accepted
accounting
principles
in
the
United
States
of
America.
In
this
presentation,
financial
measures
are
presented
in
accordance
with
GAAP
and
also
on
a
non-GAAP
basis.
Non-GAAP
measures
are
intended
to
supplement,
not
substitute
for,
GAAP
comparable
measures.
Investors
are
urged
to
consider
carefully
the
comparable
GAAP
measures
and
reconciliations
provided
herein.
Sotheby's
defines
EBITDA
as
net
income
(loss),
excluding
income
tax
expense
(benefit),
interest
expense,
interest
income,
and
depreciation
and
amortization
expense.
Sotheby’s
defines
Adjusted
Debt
as
total
debt,
plus
an
estimate
of
debt-like
items
typically
included
in
debt
calculations
of
rating
agencies,
such
as
unfunded
pensions
and
operating
leases.
For
the
purposes
of
this
presentation,
the
target
Adjusted
Debt
to
EBITDA
ratio
for
the
Agency
business
was
contemplated
by
management
by
including
the
impact
of
such
ratings
agency
adjustments
to
total
debt
and
EBITDA.
We
caution
investors
that
amounts
presented
in
accordance
with
Sotheby’s
definitions
of
EBITDA,
Adjusted
Debt,
and
the
target
Adjusted
Debt
to
EBITDA
ratio
for
the
Agency
business
may
not
be
comparable
to
similar
measures
disclosed
by
other
companies
because
not
all
companies
and
analysts
calculate
such
measures
in
the
same
manner.
Management
believes
that
EBITDA,
Adjusted
Debt,
and
the
target
Adjusted
Debt
to
EBITDA
ratio
for
the
Agency
business
provide
important
supplemental
measures
of
Sotheby's
performance
and
that
these
measures
may
be
used
by
securities
analysts,
investors,
financial
institutions,
and
other
interested
parties
in
the
evaluation
of
Sotheby's.
Management
also
utilizes
EBITDA
in
analyzing
Sotheby's
performance
and
in
the
determination
of
annual
incentive
compensation.


44
APPENDIX
(US$ in millions)
EBITDA
2013
GAAP Net income (loss)
$130
Adjustments
:
Income tax expense (benefit) related to continuing operations
$56
Income tax expense related to discontinued operations
-
Income tax benefit related to cumulative effect of accounting change
-
Income tax expense (benefit) related to equity in earnings of investees
-
Interest income
(3)
Interest expense
43
Depreciation and amortization expense
19
EBITDA
$245


45
APPENDIX
INDUSTRY / MARKET DATA:
Industry
and
market
data
used
in
this
presentation
have
been
obtained
from
industry
publications
and
sources
as
well
as
from
third-party
research
reports
prepared
for
other
purposes.
The
data
obtained
from
these
sources
has
not
been
independently
verified
and
no
guarantee
is
made
of
the
data’s
accuracy
and
completeness.
FORWARD LOOKING STATEMENTS:
This
presentation
contains
certain
forward
looking
statements,
as
such
term
is
defined
in
Section
21E
of
the
Securities
Exchange
Act
of
1934,
as
amended,
relating
to
future
events
and
the
financial
performance
of
the
Company.
Such
statements
are
only
predictions
and
involve
risks
and
uncertainties,
resulting
in
the
possibility
that
the
actual
events
or
performance
will
differ
materially
from
such
predictions.
As
such,
readers
are
cautioned
not
to
place
undue
reliance
on
forward-
looking
statements,
which
speak
only
as
to
management’s
plans,
assumptions
and
expectations
as
of
the
date
hereof.
Major
factors
which
the
Company
believes
could
cause
the
actual
results
to
differ
materially
from
the
predicted
results
in
the
forward
looking
statements
include,
but
are
not
limited
to,
the
risks
identified
below
under
“Risk
Factors,”
which
are
not
ranked
in
any
particular
order.
In
addition
to
the
considerations
and
factors
referred
to
under
“Risk
Factors”
and
in
prior
filings
and
releases,
major
factors
which
the
Company
believes
could
cause
actual
events
to
differ
materially
include,
but
are
not
limited
to,
the
overall
strength
of
the
international
economy
and
financial
markets,
political
conditions
in
various
nations,
competition
with
other
auctioneers
and
art
dealers,
the
success
of
the
Company’s
risk
reduction
and
margin
improvement
efforts,
the
amount
of
quality
property
being
consigned
to
art
auction
houses,
the
marketability
at
auction
of
such
property,
the
success
of
the
Company’s
future
auction
sales
and
the
reception
of
the
results
from
the
Company’s
announced
capital
allocation
and
financial
review
and
other
initiatives,
including
but
not
limited
to
its
cost
reduction
initiatives,
review
of
its
real
estate
portfolio
and
related
alternatives
and
its
plans
and
framework
for
returning
capital
to
stockholders
and
optimizing
its
capital
structure
and
financial
policies.
The
Company
disclaims
any
duty
to
update
or
alter
any
forward-looking
statements,
except
as
required
by
applicable
law.
RISK FACTORS:
The
global
economy
and
the
financial
markets
and
political
conditions
of
various
countries
may
negatively
affect
Sotheby's
business
and
clients,
as
well
as
the
supply
of
and
demand
for
works
of
art.
The
international
art
market
is
influenced
over
time
by
the
overall
strength
and
stability
of
the
global
economy
and
the
financial
markets
of
various
countries,
although
this
correlation
may
not
be
immediately
evident.
In
addition,
global
political
conditions
and
world
events
may
affect
Sotheby's
business
through
their
effect
on
the
economies
of
various
countries,
as
well
as
on
the
willingness
of
potential
buyers
and
sellers
to
purchase
and
sell
art
in
the
wake
of
economic
uncertainty.
Sotheby's
business
can
be
particularly
influenced
by
the
economies,
financial
markets
and
political
conditions
of
the
U.S.,
the
U.K.,
China
and
the
other
major
countries
or
territories
of
Europe
and
Asia
(including
the
Middle
East).
Accordingly,
weakness
in
those
economies
and
financial
markets
can
adversely
affect
the
supply
of
and
demand
for
works
of
art
and
Sotheby's
business.
Furthermore,
global
political
conditions
may
also
influence
the
enactment
of
legislation
that
could
adversely
impact
Sotheby's
business.


46
APPENDIX
RISK
FACTORS
(CONTINUED):
Government
laws
and
regulations
may
restrict
or
limit
Sotheby's
business
or
impact
the
value
of
its
real
estate
assets.
Many
of
Sotheby's
activities
are
subject
to
laws
and
regulations
including,
but
not
limited
to,
import
and
export
regulations,
cultural
property
ownership
laws,
data
protection
and
privacy
laws,
anti-money
laundering
laws,
antitrust
laws,
copyright
and
resale
royalty
laws,
laws
and
regulations
involving
sales,
use,
value-added
and
other
indirect
taxes,
and
regulations
related
to
the
use
of
real
estate.
In
addition,
Sotheby's
is
subject
to
local
auction
regulations,
such
as
New
York
City
Auction
Regulations
Subchapter
M
of
Title
6
§§
2-121-2-125,
et.
seq.
Such
regulations
currently
do
not
impose
a
material
impediment
to
the
worldwide
business
of
Sotheby's,
but
do
affect
the
art
market
generally.
A
material
adverse
change
in
such
regulations,
such
as
the
Equity
for
Visual
Artists
bill
introduced
in
the
U.S.
Congress
which
would
impose
a
7%
resale
royalty
on
sales
of
art
through
large
auction
houses,
could
affect
Sotheby's
business.
Additionally,
export
and
import
laws
and
cultural
property
ownership
laws
could
affect
the
availability
of
certain
kinds
of
property
for
sale
at
Sotheby's
principal
auction
locations,
increase
the
cost
of
moving
property
to
such
locations,
or
expose
Sotheby's
to
legal
claims
or
government
inquiries.
Foreign
currency
exchange
rate
movements
can
significantly
impact
Sotheby's
results
of
operations
and
financial
condition.
Sotheby's
has
operations
throughout
the
world,
with
approximately
59%
of
its
revenues
earned
outside
of
the
U.S.
in
2013.
Additionally,
Sotheby's
has
significant
assets
and
liabilities
denominated
in
the
Pound
Sterling,
the
Euro,
and
the
Swiss
Franc.
Revenues,
expenses,
gains,
and
losses
recorded
in
foreign
currencies
are
translated
using
the
monthly
average
exchange
rates
prevailing
during
the
period
in
which
they
are
recognized.
Assets
and
liabilities
recorded
in
foreign
currencies
are
translated
at
the
exchange
rate
on
the
balance
sheet
date.
Accordingly,
fluctuations
in
foreign
currency
exchange
rates,
particularly
for
the
Pound
Sterling,
the
Euro,
and
the
Swiss
Franc
can
significantly
impact
Sotheby's
results
of
operations
and
financial
condition.
Competition
in
the
international
art
market
is
intense
and
may
adversely
impact
Sotheby's
results
of
operations.
Sotheby's
competes
with
other
auctioneers
and
art
dealers
to
obtain
valuable
consignments
to
offer
for
sale
either
at
auction
or
through
private
sale.
The
level
of
competition
is
intense
and
can
adversely
impact
Sotheby's
ability
to
obtain
valuable
consignments
for
sale,
as
well
as
the
commission
margins
achieved
on
such
consignments.
Sotheby's
cannot
be
assured
of
the
amount
and
quality
of
property
consigned
for
sale,
which
may
cause
significant
variability
in
its
financial
results.
The
amount
and
quality
of
property
consigned
for
sale
is
influenced
by
a
number
of
factors
not
within
Sotheby's
control.
Many
major
consignments,
and
specifically
single-owner
sale
consignments,
often
become
available
as
a
result
of
the
death
or
financial
or
marital
difficulties
of
the
owner,
all
of
which
are
unpredictable
and
may
cause
significant
variability
in
Sotheby's
financial
results
from
period
to
period.
The
demand
for
art
is
unpredictable,
which
may
cause
significant
variability
in
Sotheby's
results
of
operations.
The
demand
for
art
is
influenced
not
only
by
overall
economic
conditions,
but
also
by
changing
trends
in
the
art
market
as
to
which
collecting
categories
and
artists
are
most
sought
after
and
by
the
collecting
preferences
of
individual
collectors,
all
of
which
are
difficult
to
predict
and
which
may
adversely
impact
the
ability
of
Sotheby's
to
obtain
and
sell
consigned
property,
potentially
causing
significant
variability
in
Sotheby's
results
of
operations
from
period
to
period.


47
APPENDIX
RISK FACTORS (CONTINUED):
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.
Accordingly,
Sotheby's
business
is
highly
dependent
upon
its
success
in
attracting
and
retaining
qualified
personnel.
The
strategic
initiatives
being
implemented
by
Sotheby's
may
not
succeed.
Sotheby's
strategic
initiatives
are
focused
on
extending
the
breadth
and
depth
of
its
relationships
with
its
most
valuable
clients,
developing
a
presence
in
China
and
other
emerging
markets,
growing
private
sales,
and
leveraging
and
growing
the
Finance
segment
client
loan
portfolio.
Sotheby's
future
operating
results
are
dependent,
in
part,
on
management's
success
in
implementing
these
and
other
strategic
initiatives.
Furthermore,
the
inability
of
Sotheby's
to
successfully
implement
its
strategic
initiatives
could
result
in,
among
other
things,
the
loss
of
clients,
the
loss
of
key
personnel,
the
impairment
of
assets,
and
inefficiencies
from
operating
in
new
and
emerging
markets.
Also,
Sotheby's
short-term
operating
results
and
liquidity
could
be
unfavorably
impacted
by
the
implementation
of
its
strategic
plans.
Sotheby's
joint
venture
in
China
is
a
foreign-invested
enterprise
under
Chinese
law.
As
such,
enforcement
of
certain
of
Sotheby's
rights
within
the
joint
venture
are
subject
to
approval
from
the
Chinese
government,
which
could
limit
the
ability
of
the
joint
venture
to
operate
and
succeed.
In
September
2012,
Sotheby's
received
approval
from
the
Chinese
government
to
form
and
operate
a
10-year
equity
joint
venture
with
Beijing
GeHua
Art
Company
in
China,
which
management
believes
will
strategically
enhance
Sotheby's
long-term
presence
in
mainland
China
and
allow
it
to
capitalize
on
the
opportunities
presented
by
the
Chinese
art
market.
Because
the
joint
venture
is
a
foreign-invested
enterprise
under
Chinese
law,
all
changes
in
shareholding
and
constitution
of
the
joint
venture
will
be
subject
to
approval
by
the
Chinese
government,
including
in
the
event
Sotheby's
is
seeking
to
terminate
the
joint
venture
agreement,
exercise
its
put
option,
or
wind-up
the
joint
venture.
Accordingly,
Sotheby's
ability
to
successfully
operate
the
joint
venture
and
enforce
the
joint
venture
agreement
provisions
could
be
constrained
by
the
Chinese
government
and
other
unforeseen
circumstances.
Sotheby's
is
currently
in
negotiations
with
the
Chinese
government
to
obtain
the
license
required
to
operate
as
a
Foreign-Invested
Commercial
Enterprise
in
order
to
establish
a
wholly-owned
subsidiary
in
China.
Sotheby's
negotiations
to
obtain
the
license
required
to
operate
as
a
Foreign-
Invested
Commercial
Enterprise
in
China
may
not
be
successful.
Sotheby's
establishment
of
a
wholly-owned
subsidiary
in
China
is
subject
to
the
receipt
of
a
license
from
the
Chinese
government.
Sotheby's
may
not
be
successful
in
obtaining
this
license,
which
could
delay
or
inhibit
its
ability
to
further
implement
its
strategic
initiatives
in
China.


48
APPENDIX
RISK
FACTORS
(CONTINUED):
Sotheby's
capital
allocation
and
financial
policies
may
impact
its
liquidity,
financial
condition,
market
capitalization
and
business,
and
Sotheby's
ongoing
ability
to
return
capital
to
its
shareholders
(and
the
size
and
timing
of
such
return)
is
subject
to
ongoing
business
variables.
In
September
2013,
the
Board
of
Directors
announced
a
review
of
Sotheby's
capital
allocation
and
financial
policies
in
an
effort
to
evaluate
ongoing
ways
to
deliver
value
to
its
shareholders,
including
through
balance
sheet
optimization
and
potential
return
of
capital
strategies.
Key
considerations
with
respect
to
such
assessment
included,
but
was
not
limited
to,
the
potential
use
of
incremental
debt
to
fund
segments
of
Sotheby’s
operations,
ongoing
funding
requirements
for
certain
of
Sotheby’s
strategic
initiatives,
both
announced
and
contemplated,
the
value
of
Sotheby’s
real
estate
properties,
and
the
potential
tax
implications
of
any
of
the
actions
considered.
The
actions
taken
by
Sotheby’s
based
on
its
review
of
its
capital
allocation
and
financial
policies
may
impact
its
current
and
future
liquidity,
financial
condition,
market
capitalization
and
business.
In
addition,
the
amount
and
timing
of
Sotheby’s
return
of
capital
to
shareholders
depends
on
various
factors,
including
the
outcome
of
Sotheby’s
review
of
strategies
with
respect
to
its
real
estate
properties,
the
amount
of
excess
cash
generated
by
the
business
in
the
future,
and
the
amount
of
capital
that
may
be
required
to
support
Sotheby’s
future
liquidity
needs,
among
other
factors.
A
small
number
of
shareholders
may
ultimately
impact
Sotheby's
business
As
of
December
31,
2013,
management
believes
that
two
of
Sotheby’s
largest
shareholders
control
approximately
16%
of
Sotheby’s
Common
Stock.
These
two
significant
shareholders,
either
individually
or
acting
together,
may
be
able
to
exercise
significant
influence
over
matters
requiring
shareholder
approval,
including
the
election
of
directors
and
approval
of
significant
corporate
transactions.
A
breach
of
the
security
measures
protecting
Sotheby's
global
network
of
information
systems
and
those
of
certain
third-party
service
providers
utilized
by
Sotheby's
may
occur.
Sotheby's
is
dependent
on
a
global
network
of
information
systems
to
conduct
its
business
and
is
committed
to
maintaining
a
strong
infrastructure
to
secure
these
systems.
As
part
of
its
information
systems
infrastructure,
Sotheby's
relies,
to
a
certain
extent,
upon
third-party
service
providers
to
perform
services
related
to
BIDnowTM,
retail
wine
e-commerce
and
website
server
hosting.
While
these
third-party
service
providers
offer
unique
and
specialized
information
security
measures,
certain
elements
of
Sotheby's
global
information
system
security
are
outside
management's
direct
control
due
to
the
use
of
these
service
providers.
These
third-party
service
providers
are
contractually
obligated
to
host
and
maintain
the
service
in
a
professional
manner,
in
accordance
with
the
rules
and
standards
generally
accepted
within
the
industry.
This
includes
conventional
security
measures
such
as
firewall,
password
and
encryption
protection,
breach
notification
requirements,
and
PCI
practices
for
credit
card
processing
services.
A
breach
of
the
security
measures
protecting
Sotheby's
information
systems
could
adversely
impact
its
operations,
reputation,
and
brand.
Sotheby's
business
continuity
plans
may
not
be
effective
in
addressing
the
impact
of
unexpected
events
that
could
impact
its
business.
Sotheby's
inability
to
successfully
implement
its
business
continuity
plans
in
the
wake
of
an
unexpected
event,
such
as
an
act
of
God
or
a
terrorist
attack
occurring
near
one
of
its
major
selling
and/or
sourcing
offices
and/or
any
other
unexpected
event,
could
disrupt
its
ability
to
operate
and
adversely
impact
its
operations.


49
APPENDIX
RISK
FACTORS
(CONTINUED):
Sotheby's
relies
on
a
small
number
of
clients
who
make
a
significant
contribution
to
its
revenues,
profitability
and
operating
cash
flows.
Sotheby's
relies
on
a
small
number
of
clients
who
make
a
significant
contribution
to
its
revenues,
profitability,
and
operating
cash
flows.
Accordingly,
Sotheby's
revenues,
profitability,
and
operating
cash
flows
are
highly
dependent
upon
its
ability
to
develop
and
maintain
relationships
with
this
small
group
of
clients,
as
well
as
the
financial
strength
of
these
clients.
Subject
to
management
approval
under
Sotheby's
policy,
Sotheby's
may
pay
the
consignor
the
net
sale
proceeds
from
an
auction
or
private
sale
before
payment
is
collected
from
the
buyer
and/or
may
allow
the
buyer
to
take
possession
of
purchased
property
before
payment
is
received.
In
these
situations,
Sotheby's
is
exposed
to
losses
in
the
event
the
buyer
does
not
make
payment.
Under
the
standard
terms
and
conditions
of
its
auction
and
private
sales,
Sotheby's
is
not
obligated
to
pay
the
consignor
for
property
that
has
not
been
paid
for
by
the
buyer.
However,
in
certain
instances
and
subject
to
management
approval
under
Sotheby's
policy,
the
consignor
may
be
paid
the
net
sale
proceeds
before
payment
is
collected
from
the
buyer
while
Sotheby's
retains
possession
of
the
property.
In
such
situations,
if
the
buyer
does
not
make
payment,
Sotheby's
will
take
title
to
the
property,
but
could
be
exposed
to
losses
if
the
value
of
the
property
declines.
In
certain
other
situations
and
subject
to
management
approval
under
Sotheby's
policy,
the
buyer
is
allowed
to
take
possession
of
purchased
property
before
making
payment.
In
these
situations,
Sotheby's
is
liable
to
the
seller
for
the
net
sale
proceeds
whether
or
not
the
buyer
makes
payment
and
would
incur
losses
in
the
event
of
buyer
default.
Sotheby's
ability
to
collect
auction
receivables
may
be
adversely
impacted
by
buyers
from
emerging
markets,
as
well
as
by
the
banking
and
foreign
currency
laws
and
regulations,
and
judicial
systems
of
the
countries
in
which
it
operates
and
in
which
its
clients
reside.
Sotheby's
operates
in
40
countries
and
has
a
worldwide
client
base
that
has
grown
in
recent
years
due
in
part
to
a
dramatic
increase
in
the
activity
of
buyers
from
emerging
markets,
and
in
particular,
China.
The
collection
of
auction
receivables
related
to
buyers
from
emerging
markets
may
be
adversely
impacted
by
the
buyer's
lack
of
familiarity
with
the
auction
process
and
the
buyer's
financial
condition.
Sotheby's
ability
to
collect
auction
receivables
may
also
be
adversely
impacted
by
the
banking
and
foreign
currency
laws
and
regulations
regarding
the
movement
of
funds
out
of
certain
countries,
as
well
as
by
Sotheby's
ability
to
enforce
its
rights
as
a
creditor
in
jurisdictions
where
the
applicable
laws
and
regulations
may
be
less
defined,
particularly
in
emerging
markets.
Demand
for
art-related
financing
is
unpredictable,
which
may
cause
variability
in
Sotheby's
results
of
operations.
Sotheby's
business
is,
in
part,
dependent
on
the
demand
for
art-related
financing,
which
can
be
significantly
influenced
by
overall
economic
conditions
and
by
the
often
unpredictable
financial
requirements
of
owners
of
major
art
collections.
Accordingly,
the
financial
results
of
Sotheby's
Finance
segment
are
subject
to
variability
from
period
to
period.
The
ability
of
Sotheby's
to
realize
proceeds
from
the
sale
of
collateral
for
Finance
segment
loans
may
be
delayed
or
limited.
In
situations
when
there
are
competing
claims
on
the
collateral
for
Finance
segment
loans
and/or
when
a
borrower
becomes
subject
to
bankruptcy
or
insolvency
laws,
Sotheby's
ability
to
realize
proceeds
from
the
sale
of
its
collateral
may
be
limited
or
delayed.


50
APPENDIX
RISK
FACTORS
(CONTINUED):
The
value
of
the
property
held
in
inventory
and
the
property
pledged
as
collateral
for
Finance
segment
loans
is
subjective
and
often
fluctuates,
exposing
Sotheby's
to
losses
and
significant
variability
in
its
results
of
operations.
The
market
for
fine
art,
decorative
art,
and
high-end
jewelry
is
not
a
highly
liquid
trading
market.
As
a
result,
the
valuation
of
these
items
is
inherently
subjective
and
their
realizable
value
often
fluctuates
over
time.
Accordingly,
Sotheby's
is
at
risk
both
as
to
the
realizable
value
of
the
property
held
in
inventory
and
as
to
the
realizable
value
of
the
property
pledged
as
collateral
for
client
loans.
In
estimating
the
realizable
value
of
the
property
held
in
inventory
and
the
property
pledged
as
collateral
for
Finance
segment
loans,
management
relies
on
the
opinions
of
Sotheby's
specialists,
who
consider
the
following
complex
array
of
factors
when
valuing
these
items:
(i)
whether
the
property
is
expected
to
be
offered
at
auction
or
sold
privately,
in
the
ordinary
course
of
Sotheby's
business;
(ii)
the
supply
and
demand
for
the
property,
taking
into
account
economic
conditions
and,
when
relevant,
changing
trends
in
the
art
market
as
to
which
collecting
categories
and
artists
are
most
sought
after;
and
(iii)
recent
sale
prices
achieved
for
comparable
items
within
a
particular
collecting
category
and/or
by
a
particular
artist.
If
there
is
evidence
that
the
estimated
realizable
value
of
a
specific
item
held
in
inventory
is
less
than
its
carrying
value,
a
loss
is
recorded
to
reflect
management's
revised
estimate
of
realizable
value.
In
addition,
if
the
estimated
realizable
value
of
the
property
pledged
as
collateral
for
a
client
loan
is
less
than
the
corresponding
loan
balance,
management
assesses
whether
it
is
necessary
to
record
a
loss
to
reduce
the
carrying
value
of
the
loan,
after
taking
into
account
the
ability
of
the
borrower
to
repay
any
shortfall
between
the
value
of
the
collateral
and
the
amount
of
the
loan.
These
factors
may
cause
significant
variability
in
Sotheby's
financial
results
from
period
to
period.
Sotheby's
could
be
exposed
to
losses
and/or
reputational
harm
as
a
result
of
various
claims
and
lawsuits
incidental
to
the
ordinary
course
of
its
business.
Sotheby's
becomes
involved
in
various
legal
proceedings,
lawsuits,
and
other
claims
incidental
to
the
ordinary
course
of
its
business.
Management
is
required
to
assess
the
likelihood
of
any
adverse
judgments
or
outcomes
in
these
matters,
as
well
as
potential
ranges
of
probable
or
reasonably
possible
losses.
A
determination
of
the
amount
of
losses,
if
any,
to
be
recorded
or
disclosed
as
a
result
of
these
contingencies
is
based
on
a
careful
analysis
of
each
individual
exposure