Third Point DFAN14A Additional proxy materials by non-management

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  ¨                             Filed by a Party other than the Registrant  x

Check the appropriate box:

¨ Preliminary Proxy Statement

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨ Definitive Proxy Statement

x Definitive Additional Materials

¨ Soliciting Material Under Rule 14a-12

SOTHEBY’S

(Name of the Registrant as Specified in its Charter)

THIRD POINT LLC

THIRD POINT OFFSHORE MASTER FUND L.P.

THIRD POINT ULTRA MASTER FUND L.P.

THIRD POINT PARTNERS L.P.

THIRD POINT PARTNERS QUALIFIED L.P.

THIRD POINT REINSURANCE CO. LTD.

LYXOR/THIRD POINT FUND LIMITED

THIRD POINT ADVISORS LLC

THIRD POINT ADVISORS II LLC

DANIEL S. LOEB

HARRY J. WILSON

OLIVIER REZA

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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This filing contains an investor presentation distributed by Third Point LLC (“Third Point”) on April 14, 2014.

***

On March 28, 2014, Third Point, certain of its affiliates and associates, Mr. Harry J. Wilson, and Mr. Olivier Reza (the “Group”) filed with the Securities and Exchange Commission (the “SEC”) and began distributing to Sotheby’s stockholders a definitive proxy statement (the “Proxy Statement”) in connection with Sotheby’s 2014 annual meeting of stockholders. THIRD POINT STRONGLY ADVISES ALL STOCKHOLDERS OF SOTHEBY’S TO READ THE GROUP’S PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION, INCLUDING INFORMATION RELATING TO THE GROUP’S PARTICIPANTS IN SUCH PROXY SOLICITATION. THE GROUP’S PROXY STATEMENT, AS FILED, AND ANY FURTHER AMENDMENTS, SUPPLEMENTS OR OTHER RELEVANT PROXY SOLICITATION DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE ATHTTP://WWW.SEC.GOV.

Investor Presentation

April 2014

2

The information in this presentation is for information purposes

only, and this presentation does not constitute an offer to purchase or

sell any security or investment product, nor does it constitute professional advice.  The information in this presentation is based on

publicly available information about Sotheby’s.  Except where otherwise indicated, the information in this presentation speaks only as

of the date set forth on the cover page.  Permission to quote third party reports in this presentation has been neither sought nor

obtained. 

This

presentation

may

include

forward-looking

statements

that

reflect

the

current

views

of

Third

Point

LLC

(“Third

Point”

),

Mr.

Harry

J.

Wilson,

and

Mr.

Olivier

Reza

and

their

respective

affiliates

and

associates

(collectively,

the

“Group”

)

with

respect

to

future

events. 

Statements that include the words “expect,”

“intend,”

“plan,”

“believe,”

“project,”

“anticipate,”

“will,”

“may,”

“would,”

and similar words

are often used to identify forward-looking statements.  All forward-looking statements address matters that involve risks and

uncertainties, many of which are beyond the control of the parties making such statements. Accordingly, there are or will be

important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you

should not place undue reliance on any such statements.  Any forward-looking statements made in this presentation are qualified in

their entirety by these cautionary statements, and there can be no assurance that the actual results or developments anticipated

by

the Group will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Sotheby’s

or its business, operations, or financial condition.  Except to the extent required by applicable law, the Group undertakes no

obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments, or

otherwise.

On

March

28,

2014,

Third

Point

LLC

and

certain

of

its

affiliates

filed

with

the

Securities

and

Exchange

Commission

(the

“SEC”

)

and

began

distributing

to

Sotheby’s

stockholders

a

definitive

proxy

statement

(the

“Proxy

Statement”

)

in

connection

with

Sotheby’s

2014

annual meeting of stockholders.  Third Point strongly advises all stockholders of Sotheby’s to read the Group’s Proxy Statement

because it contains important information, including information

relating to the Group’s participants in such proxy solicitation.  The

Group’s Proxy Statement, as filed, and any further amendments, supplements, or other relevant proxy solicitation documents will be

available at no charge on the SEC’s website at http://www.sec.gov.

Disclaimer

Source: Third Point LLC

3

Source: Third Point LLC

Third Point Overview

4

Situation Overview

5

Benefits of Shareholder Involvement

6

Current Board’s Misdirection Campaign

7

Third Point’s Business Case

8

Sotheby’s

9-15

Overview of Sotheby’s Shortcomings

16

–

Corporate Governance

17-19

–

Expense Discipline

20-22

–

Growth Opportunities

23-24

Sotheby’s Potential

25

Conclusion

26-27

Appendix: The Shareholder Slate

28-30

Table of Contents

4

Event Driven Investment Strategy

–

Focused on special situation investing across capital structures

Proven Track Record

–

Produced

average

net

annualized

returns

since

inception

in

1995

of

21.2%

while

the

CS/Tremont

Event

Driven

Index,

HFRI

Event

Driven

Index,

and

S&P

500

have

returned

10.0%,

10.4%,

and

8.9%,

respectively,

over

the

same

period

Successful Activist Investor

–

Bloomberg recently highlighted how three Third Point activist investments (Yahoo!, CF Industries, Murphy Oil) delivered returns for public

shareholders that beat the S&P 500 in an article entitled, “Activist Investors are Good for the Stock Price”

–

At Yahoo!, Third Point helped create approximately $15 billion of value for shareholders, as the share price increased over 85% while Third Point

directors served on the board from May 2012 until July 2013

Third Point LLC is an investment adviser based in New York

Note:

all

returns

calculated

for

Third

Point

Partners

L.P.

and

S&P

from

inception

(June

1995)

through

3/31/14;

all

references

to

the

CS/Tremont

Event

Driven

Index

and

HFRI

Event

Driven

Index

reflect

performance

calculated

through

2/28/14

Source:

Third

Point

LLC;

Bloomberg

article

“Activist

Investors

are

Good

for

the

Stock

Price”

from

April

3,

2014

Third Point LLC (“Third Point”) is an SEC-registered investment adviser based in New York

Approximately $14.5 billion under management

Founder

and

CEO,

Daniel

S.

Loeb,

has

over

28

years

of

experience

in

the

financial

markets

Firm Overview

Third Point Highlights

Third Point Overview

5

How did we get here?

–

Third

Point

owns

~9.6%

of

Sotheby’s

(the

“Company”

or

“BID”)

and

believes

the

Company

can

generate

significantly

more

value for shareholders through, among other things, an infusion of new leadership, better accountability, and increased

transparency

–

Accordingly, Third Point and the Company held a number of in-person and telephonic meetings between August 2013 and

February 2014 to discuss Third Point’s ideas about how to increase long-term value for shareholders

–

During these meetings, the Company offered a Board seat to Mr. Loeb; however, based on Third Point’s experience, a

single nominee from an outside shareholder in a boardroom of 12 directors is not sufficient to bring about needed change

What is Third Point suggesting specifically?

–

Three directors to reinvigorate the Board and help Sotheby’s achieve its substantial potential

–

In this case, we believe that three is the right number given the total size of the Sotheby’s Board (12 directors), the number

of

committees

on

the

Board,

and

the

specific

challenges

faced

by

the

Company

–

Furthermore, three directors has proven to be effective for Third Point in the past, e.g., three Third Point nominees were

elected to the Yahoo! Board

Why should Third Point’s nominees (the “Shareholder Slate”) be elected?

–

The

BID

nominees

we

oppose

(Robert

A.

Taubman,

Daniel

Meyer,

and

Jessica

M.

Bibliowicz),

collectively,

have

limited

share ownership and qualifications that do not appear to add value for Sotheby’s shareholders

–

The Shareholder Slate (Daniel S. Loeb, Harry J. Wilson, and Olivier Reza), collectively, owns nearly 10% of the Company

and was carefully selected for its expertise in unlocking long-term value for public shareholders, enhancing operational

efficiencies, and formulating strategy at luxury companies

In

fact,

Third

Point

nominees

have

already

delivered

benefits

to

Sotheby’s

shareholders…

Source: Third Point LLC

Situation Overview

6

Benefits of Shareholder Involvement

Benefits of greater shareholder involvement are already clear, but without continued

collaboration, progress will stall

Source: Third Point LLC; Stifel Analyst Research

Third Point Action

Response

May 2013: Third Point files 13F showing new

position in BID

Sell-side writes that “the new presence of a well-known

shareholder-value

advocate

investor”

will

bring

attention

to

real estate, excess capital, and expense growth

August 2013: Third Point has first meeting with

Sotheby’s to discuss opportunities for improvement

Company announces a review of its capital allocation and

financial policies

Company appoints a new CFO

October 2013: Third Point sends public letter to

Sotheby’s expressing concerns about leadership,

shareholder misalignment, strategic direction, Board

governance, and expense growth

Sotheby’s expands capital allocation review to include

examination of strategy, business, and cost structure

Sotheby’s appoints new Lead Independent Director

Sotheby’s publicly announces frameworks for business

reinvestment and excess capital return, as well as a special

dividend and cost savings program

February 2014: Third Point nominates three new

directors and highlights the lack of owner’s

perspective in the Boardroom as well as the long

tenure of current Board

Sotheby’s shares its conclusion that Mr. Loeb would be an

appropriate Board member and offers him a Board seat

Sotheby’s nominates two new directors to replace Sovern

(tenure: 14+ years) and Dodge (tenure: 8+ years)

7

Current Board’s Misdirection Campaign

In a recent presentation, the current Board actively misled investors about Mr. Loeb’s

credentials and Third Point’s track record of creating value for shareholders

Gross misstatements regarding Mr. Loeb’s expertise and experience by claiming Mr. Loeb has “no experience”

in the art/ auction, luxury, and digital media/communications spaces

These statements are plainly false:

–

In the art/auction and luxury spaces, Mr. Loeb is a leading collector of modern and contemporary art, has been recognized by

ARTNews

as

one

of

the

“200

Top

Collectors”

each

year

since

2005,

has

had

portions

of

his

personal

collection

exhibited

at

the

MoMA

in

New

York

and

in

other

global

museum

retrospectives

and

shows,

and

is

a

trustee

of

the

MOCA

in

Los

Angeles

–

In the media/communications area, Mr. Loeb served on the board of Yahoo!, a leading digital medial/ communications firm, from May

2012 to July 2013

False

statements

Disingenuous criticism of Mr. Loeb’s Yahoo! involvement without reference to the benefits he brought to all

Yahoo! shareholders

–

Greater than 85% increase in Yahoo!’s stock price while Mr. Loeb was a member of the Yahoo! Board and another

~20%

increase

in

Yahoo!’s

stock

price

since

Third

Point

sold

a

portion

of

its

shares

(at

the

market

price)

back

to

Yahoo! at the

company’s request

Specious

conclusion

that

Mr.

Wilson

and

Mr.

Reza

would

add

“no

incremental

relevant

experience”

to

the

Board despite obvious evidence to the contrary and without even bothering to interview them

Disingenuous

criticism

Highly misleading use of quotations from third party sources by selectively quoting excerpts from articles by

Gabelli & Co. and The New York Times that misrepresented the full message of the articles

Quotations

only

presented

a

one-sided

story

and

left

out

praise

of

the

accomplishments

and

value

that

Third Point

and Mr. Loeb brought to Yahoo!

–

The Gabelli & Co. report actually states: “Third Point was the largest pre-transaction shareholder at ~60 million shares and

the architect

of

the

2012

Board

reorganization

(which

we

continue

to

applaud),”

and,

later,

“With

its

2012

reorganization,

Third

Point

brought

a

shareholder

advocate

and

adult

supervision

to

the

table.”

–

The New York Times article actually states, regarding Third Point’s directors: “These were good directors, and they were part

of needed change at Yahoo!.”

Misleading

quotations

Source: Third Point LLC; Sotheby’s “Investor Briefing” slides from April 8, 2014; Gabelli & Co.; The New York Times

8

Management’s

claim

that

2013

was

a

“record”

year

is

misleading

and

demonstrates

the

risk

of

having

a

Board

asleep

at

the

switch

While, relative to the Company’s prior peak in 2007, the Company sold a greater dollar

value of art, the more meaningful metric is that the Company generated less revenue

and spent more money to do so

The bottom line is that earnings per share were down 42% versus their prior peak

Given the global tailwinds in the marketplace, this performance is unacceptable and we

believe it can be linked back to failed leadership of the Sotheby’s Board

Source: Third Point LLC

Our business case is a simple one

Third Point’s Business Case

We strongly believe the Shareholder Slate can reinvigorate the Board and

help Sotheby’s achieve its substantial potential

Sotheby’s is one of the world’s two leading auction houses

9

CY2013 business mix

Business overview

854

6,306

Sotheby’s: Overview

Note: auction sales represent the hammer price of property sold at auction and auction revenue represents total auction commissions; private sales represent the total purchase price of property

sold in private sales brokered by Sotheby’s and private sale revenue represents private sale commissions; other revenue includes auction guarantee and inventory activities, other agency

revenues (fees charged to clients for catalogue production, insurance, etc.), principal revenues, finance revenues, license revenues, and other revenues

Source:

Third

Point

LLC;

Company

financials;

Sotheby’s

“Investor

Briefing”

slides

from

October

15,

2013

and

April

8,

2014

Auction sales by category

Auction

Sales, 5,127

Auction

Sales, 688

Private Sales,

1,179

Private Sales,

88

Other, 78

0%

20%

40%

60%

80%

100%

Value of Property Sold

Revenue Mix

Millions of USD

Contemporary

27%

Impressionist

22%

Asian

Other

Jewelry

Other Paintings

9%

Old Masters

4%

17%

11%

10%

Founded in 1744 in London and today operates globally with 90

locations in 40 countries

Conducted 230 auctions in 9 auction salesrooms around the world

last year; also operates private sales galleries in New York, Hong

Kong, and London

Over 70 collecting categories including fine art, furniture, and jewelry

Focused on the “middle and upper echelons of the auction market”

according to management

Relative to Christie’s only, Sotheby’s had approximately 46% market

share in auctions in 2013 vs. approximately 54% for Christie’s

10

Sotheby’s: Shareholder Return

Current

Board

claims

BID

shares

have

outperformed

the

market;

however,

a

quick

look

at

historical

performance

suggests

failure

to

create

enduring

value

for

shareholders

Source: Third Point LLC; Bloomberg (15-year daily price chart)

Sotheby’s stock

price has been

highly volatile

over the past 15

years

Price basically flat

vs. 1999 and

materially below

its 2007 high

Historical

performance

suggests current

leadership has

failed to create

enduring value for

shareholders over

the long-term

11

Sotheby’s: Structural Tailwinds

Global population of ultra high net worth individuals (“ultra-HNWI”) and their combined

aggregate wealth have increased to record levels (even before factoring in gains from 2013)

Ultra-HNWI +8% vs. 2007

Ultra-HNWI aggregate wealth +9% vs. 2007

Note: ultra-HNWI defined as those with USD $30 million or more in investable assets; investable wealth does not include the value of personal assets and property such as primary residences,

collectibles, consumables, and consumer durables; 2013 figures not yet available

Source: Third Point LLC; Cap Gemini World Wealth Reports 2008-2013

Thousands of people

Trillions of USD

103.3

77.9

93.1

102.6

100.0

111.0

60

80

100

120

2007

2008

2009

2010

2011

2012

# of Ultra-HNWIs

15.0

11.4

13.8

15.4

14.7

16.3

10

12

14

16

18

2007

2008

2009

2010

2011

2012

Ultra-HNWI Aggregate Investable Wealth

12

Sotheby’s: Luxury and Art Markets

Note: luxury market figures include apparel, perfumes and cosmetics, accessories, hard luxury and art de la table; global art market figures based on actual auction

and dealer sales data, as well as projections based on the results from polling (per TEFAF)

Source: Third Point LLC; Altagamma / Bain; TEFAF (The European Fine Art Foundation) Art Market Reports for 2011 through 2013

As one might expect, luxury consumption across a variety of categories is on the rise, yet

the art market appears to be flat

Luxury consumption +28% vs. 2007

Category leaders

like Sotheby’s are

responsible for

expanding their

respective markets

Flattish art market

suggests Sotheby’s

has done a poor job

making art more

accessible and

appealing to HNWIs

Even though art, in

general, is perceived

to be a greater store

of value than most

luxury products

(e.g., handbags)

Yet the art market is flat vs. 2007

100

150

200

250

2007

2008

2009

2010

2011

2012

2013

Global Luxury Market

Billions of EUR

20

30

40

50

60

2007

2008

2009

2010

2011

2012

2013

48.1

42.2

28.3

43.0

46.1

43.0

47.4

170

167

153

173

192

212

217

Global Art Market

Billions of EUR

13

Sotheby’s: Auction and Private Sales

Sotheby’s has generated a similar level of auction and private sales, though a closer look

suggests

they

might

be

losing

share

in

“art”

given

growth

in

other

categories

like

jewelry

Note: global art market data from 2007 through 2013, per TEFAF, is based on actual auction and dealer sales data, as well as projections based on the results from polling

Source: Third Point LLC; Company filings; TEFAF (The European Fine Art Foundation) Art Market Reports for 2011 through 2013

Value of auction and private sales combined

only up slightly vs. 2007

Flattish sales in a

flattish market

suggests the Company

has failed to gain

market share

In fact, the Company

may actually be losing

share in “art”

given

strong growth in “non-

art”

categories

–

E.g., jewelry now

comprises 10% of

auction sales vs.

5% in 2007

But is Sotheby’s losing

share in “art”?

6,306

6,122

-10%

6,122

5,279

4,782

5,801

5,380

6,306

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0

2,000

4,000

6,000

8,000

2007

2008

2009

2010

2011

2012

2013

Auction and private sales in millions of USD (left axis);

art market in millions of EUR (right axis)

Aggregate Auction and Private Sales

Global Art Market

5,122

4,614

270

513

730

1,179

2,000

4,000

6,000

8,000

2007

2013

Millions of USD

Aggregate Auction Sales of All Other Categories

Aggregate Auction Sales of Jewelry

Private Sales (category breakdown not disclosed)

2,751

14

Sotheby’s: Revenue and Expenses

Note: revenue includes auction commissions, private sale commissions, other agency revenues, finance revenues, licensee fee revenues, other revenues AND excludes auction guarantee and

inventory activities, principal revenues; expenses include agency direct costs, marketing, salaries and related costs, general and administrative costs, depreciation and amortization AND

excludes cost of principal activities, restructuring charges, impairment charges, anti-trust related matters, gains on sale of land

Source: Third Point LLC; Company filings

Why has Sotheby’s generated less revenue from a

similar level of auction and private sales?

-6%

Why have expenses surpassed peak levels

despite a large cost savings program in 2009?

+2%

Mgmt targeted annual savings

of $100 million in 2009 vs. 2008

877

719

468

747

810

744

825

0

100

200

300

400

500

600

700

800

900

1,000

2007

2008

2009

2010

2011

2012

2013

Millions of USD

Sotheby's Revenue

582

395

475

532

533

597

0

100

200

300

400

500

600

700

2007

2008

2009

2010

2011

2012

2013

Millions of USD

Sotheby's Expenses

556

More importantly, relative to 2007 (prior peak), revenue is down and expenses are up

15

Sotheby’s: EPS

As a result, earnings per share (“EPS”) has declined 42% relative to peak

Note: Reported EPS is a GAAP number

Source: Third Point LLC; Company filings

Why is the Board extolling 2013 as a “Record Year”?

Down 42%!

$3.25

$0.44

($0.10)

$2.34

$2.46

$1.57

$1.88

($1.00)

$0.00

$1.00

$2.00

$3.00

$4.00

2007

2008

2009

2010

2011

2012

2013

EPS in USD

Sotheby's Reported EPS

16

Overview of Sotheby’s Shortcomings

We believe Sotheby’s weak performance can be tied back to poor corporate governance,

irresponsible cost expenditures, and missed opportunities for growth

Source: Third Point LLC; Bloomberg

Current directors lack “skin in the game”

due to limited share ownership, i.e., only 0.87% of outstanding

common

stock,

a

significant

portion

of

which

was

granted

as

part

of

the

Board’s

compensation

package

Current directors average nearly 9 years of service

Rapid adoption of a “poison pill”

in response to a letter from Third Point in the hopes of preventing Third Point

from having a say in the boardroom

Poor Corporate

Governance

Auction commission margins seem low relative to attractive fee structure in part due to the unchecked use of

fractional commissions

CEO remuneration is high given the size of the Company ($3.0bn mkt cap) and perquisites are throwbacks to a

bygone era; also, limited transparency in communicating how executive awards are determined

Announced cost savings program barely scratched the surface and suggests the Company failed to make any

serious efforts to tackle the harder issues

Lack of

Expense

Discipline

Sotheby’s needs to articulate a strategy and vision

Both auction and private sales growth can be accelerated with better technology, more dynamic sales

techniques,

and

improved

client

relationship

management,

as

well

as

more

online

and

curated

sales

Management can deploy more capital against the profitable secured lending business

Principal and dealer activities, though small today, can be expanded significantly through partnerships with

living artists, artists’

estates, and even real estate developers

Additional brand extension opportunities should also be explored

Failure to Seize

Growth

Opportunities

Director

Shares Owned

(‘000s)

% Ownership

Open market

activity since 1/1/12

Bill Ruprecht (CEO)

194.3

0.28%

Sold 86.4k

John Angelo

142.4

0.21%

Sold 137.5k

Duke of Devonshire

59.8

0.09%

Bought 5.0k

Robert A. Taubman

49.8

0.07%

-

Dennis M. Weibling

43.7

0.06%

-

Steven Dodge (retiring)

27.2

0.04%

Bought 14.6k

Michael I. Sovern (retiring)

26.7

0.04%

-

Allen Questrom

22.1

0.03%

-

Diana Taylor

18.4

0.03%

-

Daniel Meyer

6.7

0.01%

-

Marsha Simms

6.7

0.01%

-

Domenico De Sole

4.7

0.01%

Bought 4.0k

Total

602.7

0.87%

Sold 200.3k

Jessica M. Bibliowicz (nominee)

0.0

0.00%

-

Kevin C. Conroy (nominee)

0.0

0.00%

-

17

Current

Board

has

little

economic

interest

in

the

performance

of

the

Company

whereas

the

Shareholder Slate has “skin in the game”

2013 weighted avg. diluted share count of 69.175M

Source: Third Point LLC; Company filings; Bloomberg

Corporate Governance

No “owner’s perspective”

in

the boardroom; directors

hardly own any stock

–

Substantial majority of

owned shares were stock

awards

–

CEO has never purchased

shares in the open market

per Bloomberg

Since 1/1/12, directors as a

group have been net sellers

New board nominees have

NOT

purchased a single share

The Shareholder Slate owns more

than 10x as many shares as the

current Board combined and both

Harry J. Wilson and Olivier Reza

have already purchased shares

To be replaced by the Shareholder Slate

Note: shares owned as of March 24, 2014 and include deferred stock units, dividend equivalent rights, as well as shares owned by wives, children, etc; ownership percentage calculated using

Director

Tenure

Duke of Devonshire

19.6

Bill Ruprecht (CEO)

14.2

Michael I. Sovern (retiring)

14.2

Robert A. Taubman

13.7

Allen Questrom

9.3

Steven Dodge (retiring)

8.1

Dennis M. Weibling

7.9

John Angelo

7.0

Diana Taylor

7.0

Daniel Meyer

2.9

Marsha Simms

2.9

Domenico De Sole

0.3

Average

8.9

Jessica M. Bibliowicz (nominee)

0.0

Kevin C. Conroy (nominee)

0.0

18

Current Board lacks fresh perspective necessary to overhaul the Company’s challenged

operational structure and cure its cultural malaise

Note: tenure estimated using start dates disclosed in the Company’s 2014 Proxy

Source: Third Point LLC; Company filings; Institutional Shareholder Services

Institutional Shareholder Services

(“ISS”) recently released

“QuickScore 2.0”

guidelines for

optimal Board structure stating: 

“tenure of more than nine years

(can) …

potentially compromise a

director’s independence”

Using this metric, Sotheby’s current

Board fares quite poorly

Nine directors have served for

more than seven years; five of

which for more than nine

Corporate Governance

The Shareholder Slate would bring the

expertise and fresh perspectives

necessary to move Sotheby’s forward

To be replaced by the Shareholder Slate

19

Corporate Governance

Current Board seems more interested in ensuring its members are protected, as evidenced

by its rapid adoption of a discriminatory poison pill in response to a letter from Third Point

Current Board adopted a poison pill only two days after Third Point (~9.6% owner) published an open letter to

Sotheby’s calling for increased transparency and accountability and offering suggestions for improvement

Poison Pill

On March 25, Third Point filed a lawsuit asking the Delaware Chancery Court to require the Company to

redeem

the

pill

or,

in

the

alternative,

either

amend

it

to

allow

Third

Point

to

acquire

up

to

20%

of

the

Company

or enjoin the Company from enforcing the pill against Third Point

On March 31, the Court granted Third Point’s request for expedited discovery and set a preliminary injunction

hearing

for

April

25,

in

advance

of

the

planned

May

6

stockholders’

meeting

Note: percentage ownership  calculated using 2013 weighted avg. diluted share count

Source: Third Point LLC; Company filings

Lawsuit

Oddly, Sotheby’s poison pill permits passive investors (those more likely to be

supportive of the current Board) to acquire up to 20% of the outstanding shares,

while prohibiting non-supportive shareholders from acquiring 10% or more

–

Third Point is a minority shareholder looking for minority representation on the

Board

–

Corporate takeovers are not Third Point’s business model and Third Point has

no intention of taking control of Sotheby’s, which the Company knew

While claiming to embrace an open and honest dialogue with shareholders of the

Company, we believe this poison pill demonstrates that the current Board is more

interested

in

ensuring

that

its

members

are

protected

than

it

is

in

maximizing

value

by considering shareholders’

suggestions for improvement

20

Expense Discipline

Note: hammer price is the final sale price before the buyer’s premium is paid

Source: Third Point LLC; Company filings

Auction commission margins seem low relative to attractive fee structure in part due to the

unchecked use of fractional commissions

Attractive auction fee structure, i.e.

house charges large % hammer price

Yet actual margins suggest BID is

leaving a lot of money on the table

Hammer Price of $4,200,000

(average hammer price of lots over $1 million in 2013)

Buyer’s Premium

(always paid; sometimes shared with consignor)

–

25% * $100,000

=     $25,000

–

20% * $1,900,000

=     $380,000

–

12% * $2,200,000

=     $264,000

–

Sub-total

=     $669,000

(15.9% of hammer)

Vendor’s commission

(up to 10%; negotiable)

–

10% * $4,200,000

=     $420,000

Total Auction commission

=   $1,089,000 

(25.9% of hammer)

Margins should be even higher for smaller lots given

how the buyer’s premium is calculated

Auction margins suggest

limited fees collected from

consignors and increased

use of fractional

commissions, where

Sotheby’s shares the

buyer’s premium with the

consignor

The Shareholder Slate

recommends curtailing

the use of fractional

commissions and, at the

very least, completing a

detailed review of the

practice since it does not

appear to be generating

sufficient incremental

auction volumes

20.7%

18.3%

16.5%

16.3%

15.9%

0%

5%

10%

15%

20%

25%

2009

2010

2011

2012

2013

Auction commissions as % of hammer price

Sotheby's Auction Commission Margin

Expense Discipline

While

CEO

compensation

seems

high

and

perquisites

are

legendary,

shareholders

should

be

more

troubled

by

the

lack

of

transparency

and

lack

of

pay

for

performance

Source: Third Point  LLC; Company filings; Bloomberg

CEO compensation in 2013 nearly as high as 2007

despite more than 40% decline in EPS

Absolute level seems high for such a small company

(approximately $3bn market cap)

Beyond the level itself, the CEO’s perquisites are

throwbacks to a bygone era

–

He receives a $25,000 annual personal automobile

allowance, his country club dues are paid for, and his

financial planning fees are covered by shareholders

More alarming is the lack of transparency in

communicating how these awards are determined

–

The Company states in this year’s proxy that

“disclosing certain performance goals would cause

serious competitive harm,”

making vague excuses as

a response to reasonable cries for accountability from

shareholders

Finally, seemingly no pay for performance culture

More color on compensation

The Shareholder Slate believes shareholders should not

stand for the Company awarding such generous

compensation packages without transparency and

seemingly any connection to performance

21

6.2

6.0

$3.25

$1.88

$1.50

$2.50

$3.50

0.0

2.0

4.0

6.0

8.0

10.0

2007

2013

CEO compensation in millions of USD (left axis);

EPS in USD (right axis)

CEO Compensation

Sotheby's EPS

22

Expense Discipline

Note: expenses include agency direct costs, marketing, salaries and related costs, general and administrative costs, depreciation and amortization AND excludes cost

of principal activities, restructuring charges, impairment charges, anti-trust related matters, gains on sale of land; cost items do not sum due to rounding

Source:

Third

Point

LLC;

Company

filings;

Sotheby’s

“Capital

Allocation

and

Financial

Policies

Review”

slides

from

January

29,

2014

Announced cost savings program barely scratches the surface and suggests the Company

failed to make any serious efforts to tackle harder issues

Cost review only identified savings

representing nominal % total spend

More than half of

targeted savings come

from slashing the

marketing budget and

securing more

favorable terms from

external advisors

Salaries & Related Costs

($293 million): no

savings

General & Administrative

($177 million): $9

million savings from negotiated reduction in rates

and reduced scope of services on professional

fees and $4 million from other savings

Direct Costs of Auction Services

($85 million):

$5 million savings from increased efficiencies

and enhanced spending controls

Marketing

($22 million): $4 million savings from

more targeted approach to spending on core

strategic priorities and reduction or elimination of

less strategic components of marketing

expenses

D&A

($19 million): no savings

Company expenses

The Shareholder Slate

recommends seriously

analyzing both the

organizational structure

and expense base

597

22

0

100

200

300

400

500

600

700

2013 Expenses

2014 Savings

Millions of USD

23

Growth Opportunities

Sotheby’s has clear opportunities to grow and become stronger over the long-term

Source: Third Point LLC

Define what Sotheby’s is today or what it wants to be

–

Competitors are laser-focused on the consumer experience and their brand, while Sotheby’s appears

indifferent

Articulate a long-term growth strategy and vision for the Company and its brand

Formulate a strategy to manage the inherent cyclicality of its markets

–

Contingency plan for the next downturn should have both defensive and offensive elements (e.g.,

prudent management of capital and expenses, opportunity to be a buyer or lender of last resort,

development of cycle proof earnings streams)

Strategy &

Vision

Invest in long-term talent development and recruitment

Cultivate numerous points of contact within the Company so that collectors and consignors become clients of

Sotheby’s, not just individual specialists

Invest in front-end technology to facilitate online sales and auctions

Invest in data technology to record private sale and auction inquiries to promote cross-selling, improve

customer service, and increase volume

Follow up with clients to drive cross-selling to capture a greater share of each client’s relevant spending

Develop a robust approach to smaller ticket items in order to grow the customer base and compete more

effectively with Christie’s

Auctions &

Private Sales

The Shareholder Slate sees many areas of opportunity available to the Company

24

Growth Opportunities (cont’d)

Sotheby’s has clear opportunities to grow and become stronger over the long-term

Source:

Third

Point

LLC;

Sotheby’s

“Capital

Allocation

&

Financial

Policies

Review”

slides

from

January

29,

2014

Deploy

more

capital

against

profitable

secured

lending

business,

especially

now

that

the

business

has

a

separate debt facility to efficiently fund loans (consignor advances, general term loans)

–

Seemingly

no

shortage

of

capital

with

Sotheby’s

having

just

returned

$300

million

of

“excess”

capital

to

shareholders

Secured

Lending

Build a private business: initiate a greater number of curated auctions and exhibitions to leverage Sotheby’s

client base, real estate, and relationships

–

Opportunity exists to take share from art dealers and gallery owners (some of which are rumored to be

generating over $ 1 billion of sales annually) given Sotheby’s superior and continuous legacy, global

footprint, and in-house expertise

No

defined

long-term

plan

for

the

Company’s

S|2

galleries

–

How are artists chosen? How does Sotheby’s leverage its entire platform to promote them? And why is it

even

called

S|2

and

not

Sotheby’s?

Consider

partnering

with

living

artists

and

representing

artists’

estates

Principal &

Dealer

Explore additional brand extension opportunities

–

E.g., wine storage, data analytics

Develop a more thoughtful retail strategy

–

What is the long-term plan for Sotheby’s Diamonds and Sotheby’s Wine?

–

How can the Company better utilize its locations when auctions aren’t happening?

Brand

Extension

25

Note: Revenues and expenses exclude inventory and principal activities as well as extraordinary items; Other Revenue includes Other Agency Revenues, Finance Revenues, License Fee

Revenues and Other Revenues

Source:

Third

Point

LLC;

Company

filings;

Sotheby’s

“Capital

Allocation

&

Financial

Policies

Review”

slides

from

January

29,

2014;

Christie’s

website

Sotheby’s Potential

Operating

failures

in

2013

cost

shareholders

significant

value

–

conservative

improvements

in

revenue

growth

and

expense

discipline

could

have

more

than

doubled

EPS!

Pro forma earnings power

The Shareholder Slate

intends to focus on

improving operating

performance

All figures in millions of USD

2013

PF2013

Modest Improvements Yield Significant Value

Drivers:

Aggregate Auction Sales

5,127

5,940

same as Christie's in 2013; historically BID was larger

Net Auction Sales

4,339

5,027

% Aggregate Auction Sales

84.6%

84.6%

no change

Private Sales

1,179

1,179

Revenue:

Auction Commissions

688

847

Margin

15.9%

16.9%

just +100bps vs. 2013; historically as high as 20.7%

Private Sale Commissions

88

88

Other Revenue

49

49

Total Revenue

825

985

Expenses:

Direct Costs, Marketing, G&A

(284)

(256)

targeting 10% reduction vs. 8% target by mgmt ($22m on $284m)

Salaries & Related Costs

(293)

(264)

targeting 10% reduction; likely inefficiences exist here too

Total Expenses

(577)

(520)

EBITDA

248

465

D&A

(19)

(21)

4Q13 run-rate

EBIT

228

444

Interest & Other

(37)

(32)

4Q13 run-rate

Pretax Income

192

412

Effective Tax Rate

(30%)

(30%)

effective tax rate from Sotheby's 2013 10-K

Net Income

134

288

# Shares

69.2

69.2

EPS

$1.94

$4.17

26

Third Point has a proven track record of creating long-term value for public

shareholders and has already delivered benefits to Sotheby’s shareholders

The Shareholder Slate brings much needed outsider perspectives to a tenured and

complacent Board that has presided over lackluster operating performance

With reinvigorated leadership and an owner’s perspective in the boardroom, Sotheby’s

can leverage its leading brand to generate significantly higher revenues and profits

Source: Third Point LLC

Key takeaways

Conclusion

The Shareholder Slate can be counted on to

create future value for all shareholders

27

Source: Third Point LLC

The Shareholder Slate

Conclusion

28

Source: Third Point LLC

Daniel S. Loeb

Appendix: The Shareholder Slate

Over the course of his nearly two decades as an institutional investor, Mr. Loeb has developed a sophisticated

understanding of how to create and unlock long-term value for shareholders. As Chief Executive Officer of the Company's

largest shareholder, Mr. Loeb would advocate vocally for stockholders' interests if elected to the Board. For these reasons,

we believe Mr. Loeb is exceptionally qualified to serve as a director of the Company.

Daniel S. Loeb is the Chief Executive Officer of Third Point LLC, a New York-based investment management firm he founded in 1995. 

Third Point employs an event-driven approach to investing in securities across the globe. Immediately before founding Third Point, 

Mr. Loeb was Vice President of high yield sales at Citigroup. From 1991 to 1993, he was Senior Vice President in the distressed debt

department at Jefferies & Co. Mr. Loeb began his career as an Associate in private equity at E.M. Warburg Pincus & Co. in 1984

From May 2012 until July 2013, Mr. Loeb was a member of the Board of directors of Yahoo! Inc. He is a Trustee of the United States

Olympic Foundation, Mount Sinai Hospital, the Manhattan Institute, and Prep for Prep. He is the Chairman of the Board of Success

Academies Charter Schools. He is also a member of the Council on Foreign Relations and the American Enterprise Institute’s National

Council. Mr. Loeb graduated with an A.B. in Economics from Columbia University in 1983

Mr. Loeb, a leading collector of modern and contemporary art, has been recognized by ARTNews as one of the “200 Top Collectors” each

year since 2005. Works from his family collection are frequently included in global museum retrospectives and shows. Mr. Loeb has

assembled one of the most extensive collections of work by the artist Martin Kippenberger, many of which were featured in the 2009

exhibition “The Problem Perspective” at the Museum of Modern Art in New York. Mr. Loeb is a Trustee of the Museum of Contemporary Art,

Los Angeles

29

Source: Third Point LLC

Olivier Reza

Appendix: The Shareholder Slate

Olivier Reza, through Myro Capital L.L.C., is, and has been since 2009, the Chairman of Reza Gem SAS, a private French

company that is associated with Alexandre Reza’s jewelry business

The Reza jewelry collection is considered one of the most important collections of rare gems and jewelry in the world

Mr. Reza is the Founder and Managing Partner of Myro Capital, LLC, which provides management and financial advisory

services to family members and associated entities

Previously, Mr. Reza served as Managing Director in the Mergers and Acquisitions group at Lazard Freres & Co LLC in New

York, where he spent ten years working on transactions totally over $100 billion in industries ranging from industrial to consumer,

retail, distribution, metals and mining, oil and gas, pharmaceuticals, and manufacturing

Mr. Reza has a Masters degree in corporate and tax law from the University of Pan Theon Assas in Paris and a Masters degree

in finance from Institut d’Etudes Politiques de Paris

Over the course of his career, Mr. Reza has gained valuable finance and transactional experience and has had the

opportunity to manage and lead an international jewelry company,

developing expertise in cultivating relationships with

luxury customers. Mr. Reza personally has been, and continues to

be, a very active art collector. For these reasons, we

believe Mr. Reza is exceptionally well-qualified to serve as a director of the Company

30

Source: Third Point LLC

Harry J. Wilson

Appendix: The Shareholder Slate

Harry Wilson, the Founder and CEO of MAEVA Group, LLC, is a nationally-recognized expert in corporate

restructurings, turnarounds, and transformations and in leading complicated businesses through corporate

transitions, as an investor/owner, advisor, or director.

In addition to MAEVA’s active role in transforming companies, Mr. Wilson frequently drives transformational change in his

personal capacity as a member of the Board of Directors of companies undergoing major transitions. Currently, Mr. Wilson serves

on the board of Visteon Corporation and recently completed service on the boards of Yahoo! and YRC Worldwide.  He also

served on the board of directors of several other companies earlier in his career. In each of his recent director roles, he was

asked to join the board by one or more major investors who wanted his help improving the respective company. Upon joining the

board,

he

worked

closely

and

collaboratively

with

management

and

his

fellow

directors

to

dramatically

change

the

operations

of

these businesses and substantially improve their prospects for success. In all three recent public company situations, investors

benefited from enormous value creation through Mr. Wilson's work.

Before

founding

MAEVA,

Mr.

Wilson

was

a

Senior

Advisor

to

the

US

Treasury

Department,

serving

as

a

senior

member

of

the

President’s Automotive Task Force with principal responsibility for the successful restructuring of General Motors. Mr. Wilson was

a partner at Silver Point Capital, a prominent credit-oriented investment fund, before serving on the Automotive Task Force.

Additionally,

Mr.

Wilson

is

active

in

philanthropic

and

policy

initiatives.

He

recently

completed

a

Presidential

Appointment

to

the

Advisory Committee of the Pension Benefit Guaranty Corporation and serves on the board of two non-profit organizations: Youth,

INC and The Hellenic Initiative.

Mr. Wilson has an A.B. in government, with honors, from Harvard College and an MBA from Harvard Business School.

Throughout his career, Mr. Wilson has worked with companies as an investor, a Board member, and an advisor, to address

capital allocation strategies and to substantially enhance operational efficiencies. This experience includes significant time

and effort building consensus among management teams, directors,

investors and employees to drive major improvements.

For these reasons, we believe Mr. Wilson is exceptionally well-qualified to serve as a director of the Company.