Sotheby's and the Taubman Sale

I had been planning on posting this but for some reason a few other items got into my queue first.  The results from the Sotheby's $515 million guarantee of the Taubman collection are in and the auction expected to lose $12 million in the 4th quarter of 2015 because of the shortfalls from the sale.

While this does not include the Old Master sale held in late January, as well as other items in upcoming sales, expectations are that Sotheby's will lose millions due to the high guarantee. Final numbers will be announced later in February. But, Sotheby's had no choice as they could not lose the collection of its former owner to a competitor.

The NY Times reports

For months, the art world had been wondering: Would the biggest guarantee in auction history pay off? Would Sotheby’s come out ahead, break even or be left holding the bag on a $515 million commitment to the collection of its disgraced former chairman, A. Alfred Taubman?

Now the results are in.

On Friday, the auction house announced that it expected to lose $12 million in the fourth quarter of 2015 as a result of the Taubman sale, because of a revenue shortfall and related expenses. The company also said it would eliminate its quarterly cash dividend, which had been in place since 2006, a move the company estimated would save $27 million to $28 million.

“As a result of the guarantee shortfall, no net auction commission revenue will be recognized for the Taubman collection in the fourth quarter of 2015 or in 2016,” Tad Smith, the president and chief executive of Sotheby’s, said Friday morning in a conference call with analysts and investors to report the latest earnings.

Sotheby’s beat Christie’s for the collection — which ranges from old masters to 20th-century masterworks — by offering its record-setting guarantee to the family of Mr. Taubman, who went to prison for his role in a price-fixing scandal with Christie’s and died last April. There was considerable skepticism in the art market about whether Sotheby’s had overpaid, and dire predictions that the auction house would take a bath.

The consensus now seems to be that the Taubman gamble was unfortunate, albeit unavoidable.

“You can see the competitive challenges in losing something that close to you, but they were kind of taken to the cleaners,” said George Sutton, an analyst at Craig-Hallum. “Hopefully, there’s never a scenario like that again.”

Mr. Smith maintains that the Taubman guarantee is not a sign of things to come, that Sotheby’s will carefully weigh the risks in undertaking future commitments.

“There was only one Alfred Taubman,” Mr. Smith said in November, adding that the collection’s size and importance made the consignment “important to win.”

And on Friday Mr. Smith sounded generally positive about Sotheby’s prospects, partly because the board had authorized the auction house to repurchase $325 million in shares — up from $125 million — which would be funded by the repatriation of Sotheby’s foreign earnings.

Sotheby’s released its fourth-quarter results early so it could repurchase shares, a move that the company had hoped to make in December but delayed while negotiating to buy Art Agency, Partners.

“The question is, what’s driving the enthusiasm around buying back the stock?” Mr. Sutton said. “It seems like a good short-term thing. It seems like a challenging move long term, unless you’re much more confident about the cycle than we can be right now.”

Sotheby’s acquired the Art Agency team — Amy Cappellazzo, Allan Schwartzman and Adam Chinn — early this month for $50 million, plus a conditional $35 million to build Sotheby’s advisory and private sales business.

Despite art-world concerns that the market may be softening, Ms. Cappellazzo, on Friday’s call, sounded bullish. “The larger art market is on the hunt,” she said. “They’re still looking for good things. While the market might be somewhat more selective, it’s still solid.”

Aside from the Taubman blow to earnings, Sotheby’s margin for the quarter and the full year improved over 2014.

In total, the auction house is estimating a net loss of $10 million to $19 million for the quarter — compared with net income of $74 million the year before — partly because of a $37 million pretax charge associated with about 80 buyouts late last year.

Sotheby’s full-year adjusted net income for 2015 is estimated to be $138 million to $142 million, compared with $142 million in 2014. The remaining Taubman property, much of which comes up at an old masters sale on Wednesday, has a low estimate of about $24 million but could also fall short.

Any additional Taubman losses, Mr. Smith said, would be accrued to the fourth quarter of 2015; the final tally will be announced in late February.

Sotheby’s stock price closed at $23.76 on Friday, up 4.35 percent.

Source: The NY Times