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Sotheby’s Extends Guarantees to $166 Million Before Sales

Sotheby's in New York. Photographer: Stephen Hilger/Bloomberg

Sotheby’s said it entered into auction guarantees totaling $166.4 million, according to a filing, in a move aimed at winning more consignments.

The New York-based auction house said last night it’s reducing its exposure by “irrevocable bids” of $23.5 million, which are from undisclosed third-party guarantors. It may further reduce risk by additional “irrevocable bids” before auctions in the fourth quarter, it said in the filing with the U.S. Securities and Exchange Commission.

Auction houses can encourage sellers by offering them a minimum price, guaranteed either by the auction house or a third party. Returns can be higher without guarantee, though there is a chance of a work not selling. Sotheby’s previously reduced guarantees after it lost $60 million from them in 2008, as artworks sold for less than the minimum guaranteed price or didn’t sell at all.

Sotheby’s recently increased borrowing capacity to provide as much as “$300 million of net outstanding guarantee exposure,” Chairman and Chief Executive William Ruprecht said in an Aug. 6 conference call.

“We did this to enhance our flexibility as we negotiate deal opportunities and hopefully provide us with an opportunity to improve margins and profitability by taking prudent balance sheet risk,” Ruprecht said.

Fall Sales

Sotheby’s major sales coming up include events in Hong Kong and London in October and New York in November. Christie’s International Plc and other auction houses plan sales.

Sotheby’s, the world’s largest publicly traded auctioneer of fine arts and collectibles, is being targeted by Daniel Loeb’s Third Point LLC activist hedge-fund firm, which amassed a 5.7 percent stake. Third Point intends to engage Sotheby’s board and management in talks, according to an Aug. 26 regulatory filing.

Sotheby’s stock is at $46.89, up from $33.03 in April and near its Aug. 26 close of $47.21, which was its highest in two years.

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