EX-99.3 3 d616685dex993.

htm EX-3

O CT 2013

Dis claim er M ar cat o Capit al M anagem ent LLC ( " M ar cat o" ) is an SEC- r egis t er ed invest m ent advis er based in San Fr ancis co, Calif or nia. M ar cat o pr ovides invest m ent advis or y ser vic es t o it s pr opr iet ar y pr iv at e invest m ent f unds ( each a " M ar cat o Fund" collect iv ely , t he " M ar cat o Funds" ) . This dis claim er is is sued in connect ion wit h t he pr esent at ion m ade by M ar cat o at t he Excellence I n I nvest ing: San Fr ancis co conf er ence held on O ct ober 23, 2013 ( t he " Pr esent at ion" ) . The Pr esent at ion is f or inf or m at ional pur poses only and it does not have r egar d t o t he specif ic invest m ent object iv e, f inancial sit uat ion, suit abilit y or par t ic ular need of any specif ic per son who m ay r eceiv e t he Pr esent at ion, and should not be t aken as advic e on t he m er it s of any invest m ent decis ion. The views expr essed in t he Pr esent at ion r epr esent t he opinions of M ar cat o, and ar e based on public ly available inf or m at ion and M ar cat o analy ses. Cer t ain f inancial inf or m at ion and dat a used in t he Pr esent at ion have been der iv ed or obt ained f r om f ilngs m ade wit h t he Secur it ies and Exchange Com m is sion ( " SEC" ) by t he is suer or ot her com panies t hat M ar cat o consider s com par able. M ar cat o has not sought or obt ained consent f r om any t hir d par t y t o use any st at em ent s or inf or m at ion indic at ed in t he Pr esent at ion as having been obt ained or der iv ed f r om a t hir d par t y. Any such st at em ent s or inf or m at ion should not be viewed as indic at ing t he suppor t of such t hir d par t y f or t he views expr essed. I nf or m at ion cont ained in t he Pr esent at ion is believed t o be accur at e and der iv ed f r om sour ces whic h M ar cat o believes t o be r eliable; however , M ar cat o dis claim s any and all liabilit y as t o t he com plet eness or accur acy of t he inf or m at ion and f or any om is sions of m at er ial f act s. M ar cat o under t akes no obligat ion t o cor r ect , updat e or r evis e t he Pr esent at ion or t o ot her wis e pr ovide any addit ional m at er ials . The Pr esent at ion m ay cont ain f or war d- looking st at em ent s whic h r ef lect M ar cat o's views wit h r espect t o, am ong ot her t hings, f ut ur e event s and f inancial per f or m ance. For war d- looking st at em ent s ar e subject t o var ious r is ks and uncer t aint ies and assum pt ions. I f one or m or e of t he r is ks or uncer t aint ies m at er ializ e, or if M ar cat o's under ly ing assum pt ions pr ove t o be incor r ect , t he act ual r esult s m ay var y m at er ialy f r om out com es indic at ed by t hese st at em ent s. Accor dingly , f or war d- looking st at em ent s should not be r egar ded as a r epr esent at ion by M ar cat o t hat t he f ut ur e plans, est im at es or expect at ions cont em plat ed wil ever be achieved. The secur it ies or invest m ent ideas lis t ed ar e not pr esent ed in or der t o suggest or show pr of it abilit y of any or all t r ansact ions. Ther e should be no assum pt ion t hat any specif ic por t f olio secur it ies ident if ied and descr ibed in t he Pr esent at ion wer e or wil be pr of it able. Under no cir cum st ances is t he Pr esent at ion t o be used or consider ed as an of f er t o sell or a solic it at ion of an of f er t o buy any secur it y, nor does t he Pr esent at ion const it ut e eit her an of f er t o sell or a solic it at ion of an of f er t o buy any int er est in t he M ar cat o Funds. Any such of f er would only be m ade at t he t im e a qualif ied of f er ee r eceiv es t he Conf ident ial Explanat or y M em or andum of a M ar cat o Fund. Any invest m ent in t he M ar cat o Funds is speculat iv e and involv es subst ant ial r is k, including t he r is k of losing all or subst ant ialy all of such invest m ent . M ar cat o m ay change it s views or it s invest m ent posit ions descr ibed in t he Pr esent at ion at any t im e as it deem s appr opr iat e. M ar cat o m ay buy or sell or ot her wis e change t he f or m or subst ance of any of it s invest m ent s in any m anner per m it t ed by law and expr essly dis claim s any obligat ion t o not if y t he m ar ket , a r ecipient of t he Pr esent at ion or any ot her par t y of any such changes. < 1 >

Table of Cont ent s G uiding Pr inciplesI nt r oduct ion t o Sot heby's O ppor t unit ies f or Value Cr eat ionM axim iz ing Shar eholder Value < 2 >

I . G uiding Pr inciples < 3 >

G uiding Pr inciples M anagem ent should invest t he Com pany's capit al in t he highest r et ur n oppor t unit iesM inim um r et ur n hur dle should be at least t he Com pany's cost of capit alI f t he Com pany's invest able r esour ces exceed t he am ount of it s at t r act iv e invest m ent oppor t unit ies, t he Com pany should r et ur n t hat capit al t o shar eholder sLower ing t he cost of capit al used t o f und at t r act iv e business act iv it ies wil incr ease t he value of t he ent er pr is e < 4 >

Applic at ion of G uiding Pr inciples t o Sot heby's Unlock Value of O wned Real Est at eSot heby's should m onet iz e it s r eal est at e t hr ough a sale or sale / leaseback t r ansact ionPr udent ly Capit aliz e Financing Segm ent Sot heby's should f inance t his segm ent wit h less expensiv e capit al, r at her t han wit h equit yElim inat e t he Value Dim inis hing Dealer Segm ent Close or sell t he Dealer segm ent < 5 >

Signif ic ant O ppor t unit y t o Unlock Shar eholder Value $1. 3 bilion in t r apped equit y value ( ~38% of m ar ket cap or ~$19/ shar e) O wned r eal est at e = $875 m ilonReceiv ables por t f olio = $441 m ilonDealer invent or y = $61 m ilonO pt im iz ed capit al st r uct ur e = $550 m ilonLess m or t gages, t axes, et c. =( $613 m ilon) A $1. 3 bilion acceler at ed shar e r epur chase would dr iv e signif ic ant long- t er m valueEst im at ed $68 per shar e value is a 56% pr em ium above July 30t h close < 6 >

Sot heby's Tr apped Asset s Ar e M at er ial < 7 > ~38% of BI D's m ar ket cap Non- Cor e Net Asset Value Build ( $M s)

I I . I nt r oduct ion t o Sot heby's < 8 >

Sour ce: Com pany f ilngs, Bloom ber g and Capit alI Q . Closing st ock pr ic e as of O ct ober 16, 2013. All f igur es in t his pr esent at ion r ef er ence t his st ock pr ic e. Consensus est im at es. Sot heby's is one of t wo m ajor global ar t auct ion housesAct s as an agent by selling ar t t hr ough auct ions or pr iv at e salesAls o pr ovides ar t - r elat ed f inancial ser vic es and oper at es an ar t dealer Founded in 1744, Sot heby's is t he oldest com pany lis t ed on t he NYSECapit aliz at ion: Equit y Value: $3. 5BEnt er pr is e Value: $3. 3BO per at ing St at is t ic s ( 2) : 2013E Revenue: $779M 2013E EBI TDA: $231M 2013E EBI T: $212M Sot heby's ( NYSE: BI D) < 9 > Valuat ion M ult iples: TEV / EBI TDA: 14. 3xTEV / EBI T: 15. 6x Tic ker : " BI D" St ock Pr ic e: $51. 15 ( 1)

Sour ce: Bloom ber g. * Accor ding t o 13- D f ilngs < 10 > W hy not ? M ay 31, 2013: M ar cat o init iat es posit ion* Jul 30, 2013: M ar cat o f iles 13D r epor t ing 6. 6% owner ship posit ion Aug 26, 2013: Thir d Point f iles 13D r epor t ing 5. 7% owner ship posit ion BI D shar es under per f or m ed t he S&P by 31% pr ior t o M ar cat o involv em ent Undis t ur bed Pr ic es Thr ough M ay 2013 3 Year s Pr ior t o Act iv is t I nvolv em ent ( 31% ) O ct 2, 2013: Thir d Point f iles am ended 13D r epor t ing 9. 3% st ake Pr ior t o Act iv is t I nvolv em ent , BI D Shar es Have Not Per f or m ed Despit e a St r ong Ar t M ar ket

Cont em por ar y, Pr iv at e Sales, China & M iddle East Expansion, Digit al, Lic ensing O ppor t unit ies Abound < 11 > I ncom e St at em ent Balance Sheet Revenue Expenses Ef f ic iency, Allocat ion Asset s Liabilit ies Allocat ing capit al t o t he highest r et ur n oppor t unit ies Funding business act iv it ies wit h t he lowest cost of capit al

O ppor t unit ies Abound < 12 > I ncom e St at em ent Balance Sheet Revenue Expenses Asset s Liabilit ies Allocat ing capit al t o t he highest r et ur n oppor t unit ies Funding business act iv it ies wit h t he lowest cost of capit al O ur pr esent at ion t oday wil f ocus her e Cont em por ar y, Pr iv at e Sales, China & M iddle East Expansion, Digit al, Lic ensing Ef f ic iency, Allocat ion

I I I . O ppor t unit ies For Value Cr eat ion < 13 >

( 1) O wned Real Est at e < 14 > ~38% of BI D's m ar ket cap Non- Cor e Net Asset Value Build O wned Real Est at e ( $M s)

* Not e: Est im at es based on m aps f r om U. K. Land Regis t r y O wned Real Est at e < 15 > New Yor k - 1334 Yor k Avenue 439. 6K sq f t 95. 5K sq f t owned in London, of whic h we est im at e 48K is New Bond St building* London - New Bond St r eet

Sour ce: Collier s, Q 2 2013. W e Est im at e t he Value of t he NYC O f f ic e t o be ~$500M < 16 > M anhat t an O f f ic e Pr ecedent Tr ansact ions: Pr ic e & Rent per SF Feb 2009 - Sot heby's pur chases NYC of f ic e f r om RFR f or $370M Feb 2003 - RFR pur chases 1334 Yor k Ave f or $175M Feb 2007 - RFR's ask f or 1334 Yor k Ave was $500M

Sour ce: CBRE, Q 2 2013. New Bond St r eet is London's Pr em ier Shopping Dis t r ic t < 17 > Cent r al London - Com par is on of Ret ail Space Rent

Sour ce: CBRE, Q 2 2013 Now is an At t r act iv e Tim e t o M onet iz e London Real Est at e < 18 >

Sour ce: CB Ric har d Ellis Cap r at es f or pr ecedent t r ansact ions ar e in t he 1. 5% - 3. 0% r angeG r ound f loor space on New Bond St r eet t ypic ally occupied by high- end luxur y r et ailer s Pr ecedent Tr ansact ions Done at High Valuat ions < 19 > Sot heby's 34- 35 New Bond St r eet Coach & Sm yt hson 39- 42 New Bond St r eet Sold in Q 4 2011 f or $154M and 2. 95% cap r at e Hublot 31 New Bond St r eet Sold in Q 4 2011 f or $18M at 2. 63% cap r at e Louis Vuit t on 17- 20 New Bond St r eet Sold in Q 4 2011 f or $307M at 2. 63% cap r at e New Bond St r eet Sout h of Conduit St r eet O t her Near by Com ps 141- 142 New Bond St r eet r um or ed t o be on m ar ket in Q 3 2013 f or $130M at 2. 5% cap r at e178 New Bond St r eet sold in Q 2 2013 f or $51M at 2. 14% cap r at e9 O ld Bond St r eet sold in Q 2 2013 f or $30M at 1. 42% cap r at e Conduit St r eet New Bond St r eet Nor t h of Conduit St r eet Conduit St r eet

I lust r at iv e Valuat ion of New Bond St r eet Building < 20 > Sour ce: M ar ket dat a per CBRE, public pr ess r eleases ~Avg. W est End of f ic e r ent as per CBRE Har r y W inst on sold ~7, 000 per SF in June 2013

I lust r at iv e Value of O t her O wned London Real Est at e < 21 > Sour ce: M ar ket dat a per CBRE, public pr ess r eleases Sot heby's als o has an addit ional ~47K of owned r eal est at e in London. W hile we ar e uncer t ain of t he exact nat ur e or locat ion of t his space, we believe it is close t o t he New Bond St r eet building ( t he 2004 10- K not es t he " New Bond St r eet pr em is es ar e appr oxim at ely 200, 000 squar e f eet " )

( 2) Financing Segm ent < 22 > ~38% of BI D's m ar ket cap Non- Cor e Net Asset Value Build Financing Segm ent ( $M s)

Sour ce: Com pany f ilngs. Sot heby's loans m oney t o consignor s t o cr eat e st r onger r elat ionships and im pr ove f ut ur e auct ion volum eThese loans ar e t ypic ally secur ed by t he ar t at <50% LTV wit h var iable r at es ( cur r ent ly ~5% ) Sot heby's t ypic ally pr ovides t wo t ypes of secur ed loans: ( 1) " consignor advances" whic h ar e loans t o bor r ower s who ar e cont r act ually com m it t ed, t ypic ally wit hin a year , t o sell t he pr oper t y at auct ion( 2) " t er m loans" m ade f or gener al pur poses secur ed by pr oper t y but not pr esent ly int ended f or sale W hat ar e t he Not es Receiv able? < 23 >

Sour ce: Com pany invest or pr esent at ion. These Loans Have Exper ienced Ext r em ely Low Loss Rat es < 24 > Loan Ris ks and His t or ic al Loan Losses Ext r em ely low loss r at e

Sour ce: Com pany f ilngs. Sot heby's Has Exper ienced I ncongr uous G r owt h in Loan Balance < 25 > Sot heby's now has 2. 5x m or e loans com par ed t o 2007, even t hough aggr egat e auct ion sales ar e 17% lower 2. 5x higher 17% lower Not es Receiv able

Sour ce: Com pany f ilngs. Sot heby's Financial segm ent is cur r ent ly unlever ed ? 100% equit y f inancedThe segm ent gener at es ~$22M r un- r at e EBI T on $441M not es r eceiv able balance ( a pr e- t ax yield of ~5. 0% or ~3. 4% post - t ax) Sot heby's Does Not G ener at e an At t r act iv e Yield on it s Loans < 26 > I nt er est I ncom e ~$22M r un- r at e and ~3. 4% post - t ax yield

Sour ce: Bloom ber g, G oldm an Sachs r esear ch and Com pany f ilngs. 3 year adjust ed bet a f r om Bloom ber g. G oldm an Sachs invest m ent r esear ch " U. S. W eekly Kic kst ar t , " August 2, 2013. W hat is Sot heby's Cost of Capit al? < 27 > I lust r at iv e W ACC W e est im at e t hat Sot heby's W ACC is ~11% vs. ~3. 4% post - t ax yield f r om it s f inancing business

Sour ce: Com pany invest or pr esent at ion. Sot heby's Not es Receiv able ar e At t r act iv e vs. O t her Yield I nst r um ent s < 28 > Sot heby's - Not es Receiv able Bloom ber g I nvest m ent G r ade US Cor por at e Bond I ndex ( BUSC) Bloom ber g USD High Yield Cor por at e Bond I ndex ( BUHY) M ar r iot t Vacat ions - Tim eshar e Receiv ables Receiv able Balance $441M $988M as of Q 2 2013 Dur at ion 6- 18 m ont hs 10. 03 year s 5. 21 year s 10 year s, but no pr epaym ent penalt ies so t ypic ally shor t er Yield 4. 7% 3. 21% 6. 25% 13% Spr ead t o Benchm ar k 4. 6% over 1yr Tr easur y of 0. 11% 0. 50% over 10yr Tr easur y of 2. 71% 4. 76% over 5yr Tr easur y of 1. 49% 10. 29% over 10yr Tr easur y of 2. 71% Cr edit Q ualit y 0. 4% loan losses bet ween 1991- 2011* 4. 5% def ault r at e in 2012 Spr ead af t er est im at ed loan losses 4. 2% over 1yr Tr easur y 5. 79% over 10yr Tr easur y Financing None 2yr war ehouse f acilit y ar r anged by Cr edit Suis se Non- r ecour se ~80% advance r at e at LI BO R+150

< 29 > Sour ce: Public docum ent s. Financial I nst it ut ions Have Bought Receiv ables Fr om Capt iv e Finance Subsidiar ies At ~1x Book Value

Sour ce: M ar r iot t Vacat ions W or ldwide invest or pr esent at ion. Case St udy: M ar r iot t Vacat ions Collect s Tim eshar e Receiv ables on I t s W ar ehouse Facilit y, Then Sells Secur it iz at ions t o t he O pen M ar ket < 30 > W ar ehouse Facilit yAr r anged by Cr edit Suis se$250M capacit y1m o LI BO R + 150Non- r ecour se2 year s ( r enewed Sept 2012 unt il Sept 2014) Advance r at es var y ( r anging f r om 50- 96% ) ; f ir st dr aw in O ct 2011 was 81% advance r at e Recent Secur it iz at ions2010: Financed $229M of not es at 95% advance r at e at 3. 6% int er est r at e2012: Financed $250M of not es at 95% advance r at e at 2. 6% int er est r at e Excer pt f r om M ar r iot t Vacat ions I nvest or Pr esent at ion

Com pany's Cur r ent Undr awn Revolv er wit h G E Capit al Alr eady Allows f or 85% Advance Rat e on Eligible Ar t Loans at L+200- 250 " Dom est ic Bor r owing Base" m eans, as of any dat e of det er m inat ion, an am ount equal t o ( a) 85% of t he Available Dom est ic Ar t Loan Balance as of such dat e plus ( b) t he Dom est ic Eligible Ar t I nvent or y Com ponent as of such dat e plus ( c) t he Dom est ic CNTA Com ponent as of such dat e m inus ( d) Reser ves est ablis hed by Agent at such t im e. Def init ion of Dom est ic Bor r owing Base in Revolv er < 31 > Lender s ar e alr eady wiling t o lend against t his loan por t f olio " The act iv it ies of t he Finance segm ent , whic h ar e conduct ed t hr ough Sot heby's wholly - owned subsidiar ies, have in r ecent year s been f unded t hr ough t he oper at ing cash f lows of t he Auct ion segm ent . Sot heby's m ay supplem ent t he f unding of t he Finance segm ent wit h r evolv ing cr edit f acilit y bor r owings, but has not bor r owed under it s r evolv ing cr edit f acilit y dur ing t he last f our year s. " - 2012 10- K, pg. 7

< 32 > Receiv able- Level Debt Does NO T I nhibit Financial Flexibilt y Can be st r uct ur ed as non- r ecour se t o par ent com pany ? lit t le t o no im pact on t he cor e auct ion businessM or e t han enough m ar gin of saf et y giv en ext r em ely low loss r at es of 0. 3% , pr oven over 20+ year s of dat a" M at ching" asset s and liabilit ies ? cr edit f acilit y allows f or im m ediat e dr aws and r epaym ent The associat ed int er est expense should be t hought of as an oper at ing expense r at her t han incr em ent al lever age on t he cor e auct ion business

( 3) Dealer Segm ent < 33 > Non- Cor e Net Asset Value Build Dealer Segm ent ~38% of BI D's m ar ket cap ( $M s)

Sot heby's paid $82. 5M t o acquir e Noor t m an M ast er Paint ings in June 2006 ( 1. 95M shar es at $29. 01 and $26M of assum ed debt ) Sour ce: Com pany f ilngs. Dealer Segm ent is a Dr ag on Ear nings < 34 > Dealer Segm ent Financials ~$83M acquis it ion r esult ed in ( $61) M in losses and count ing

Sour ce: Com pany f ilngs. Dealer segm ent als o t ies up a lar ge am ount of capit al while gener at ing negat iv e ear nings Dealer Segm ent Depr esses Shar eholder Ret ur ns < 35 > Dealer I nvent or y Balance Dealer segm ent should be shut down and invent or y sold

I V. M axim iz ing Shar eholder Value < 36 >

< 37 > W e Est im at e Sot heby's Could Fr ee Up ~$1. 3B of Capit al ( ~$19 per shar e or ~38% of t he M ar ket Cap) Not e: W e assum e r eceiv ables f inanced wit h non- r ecour se debt . Associat ed int er est expense t r eat ed as an oper at ing expense and associat ed debt not included in TEV. Conser vat iv ely assum es no t ax- ef f ic ient way of m onet iz ing asset s

Sour ce: Com pany f ilngs, Bloom ber g. 10 year annualiz ed t ot al r et ur n f or t he S&P 500. Upside t o M ar cat o's ilust r at iv e pr ic e t ar get . Assum ing a 5% cap r at e on t he Com pany's NYC O f f ic e, 3. 5% cap r at e on it s New Bond St . building, 4% cap r at e on it s O t her London Pr oper t ies , 85% of t he Com pany's cur r ent r eceiv ables , 100% of dealer incom e and m or t gage expenses. Sot heby's has a signif ic ant am ount of excess capit al t hat it should invest int o t he highest r et ur n oppor t unit ies t he Com pany has availableReinvest ing a por t ion int o gr owt h capex is a viable opt ion, pr ovided t hat t hese invest m ent s pr oduce a r et ur n in excess of t he Com pany's cost of capit alI f t he Com pany does not have such r einvest m ent oppor t unit ies, it m ust r et ur n t he capit al t o shar eholder s M axim iz ing Shar eholder Capit al Ret ur n < 38 > Capit al Allocat ion O pt ions ( 2)

Sour ce: Com pany f ilngs and Capit alI Q . Not e: W e assum e r eceiv ables f inanced wit h non- r ecour se debt . Associat ed int er est expense t r eat ed as an oper at ing expense and associat ed debt not included in TEV. M or t gage debt as per 6/ 30/ 13 balance sheet . W e believe Sot heby's r epur chasing it s shar es would lead t o signif ic ant long- t er m value accr et ion f or shar eholder s I lust r at iv e I m pact of a $1. 3B Shar e Repur chase < 39 > An Acceler at ed Shar e Repur chase would be an ef f ic ient way t o accom plis h t his and could be com plet ed in ~1 year 56% pr em ium t o $43. 71 when M ar cat o f iled init ial 13- D on July 30t h ( 1)

Cont em por ar y, Pr iv at e Sales, China & M iddle East Expansion, Digit al, Lic ensing Signif ic ant Upside Rem ains f r om O per at ional I m pr ovem ent s < 40 > I ncom e St at em ent Balance Sheet Revenue Expenses Ef f ic iency, Allocat ion Asset s Liabilit ies Allocat ing capit al t o t he highest r et ur n oppor t unit ies Funding business act iv it ies wit h t he lowest cost of capit al

Sot heby's t r apped equit y value of $1. 3 bilion is signif ic ant ~38% of m ar ket cap or ~$19/ shar eReinvest m ent oppor t unit ies do not pr oduce a r et ur n in excess of t he Com pany's cost of capit al ? t her ef or e, t his capit al should be r et ur ned t o shar eholder sA $1. 3 bilion acceler at ed shar e r epur chase would dr iv e signif ic ant long- t er m valueEst im at ed $68 per shar e value is a 56% pr em ium above July 30t h close Signif ic ant O ppor t unit y t o Unlock Shar eholder Value < 41 >