It has not been a good two years for the auction business. Sotheby's announced two weeks ago that, together with Christie's, it had entered into an agreement, subject to court approval, to settle the Kruman case, an antitrust class action seeking damages through the United States Courts for auctions that took place between 1993 and 2000 outside the United States. The Kruman Litigation includes all buyers participating at auctions outside the United States between January 1,1993 and February 7, 2000 and all sellers participating at auctions outside the United States between September 1, 1995 and February 7, 2000.
Under the terms of the settlement agreement, Sotheby's and Christie's will each pay $20 million. The settlement agreement also provides that the threatened claim in England by a law firm on behalf of certain sellers at auctions held by the Company and Christie's in England will not be pursued, and that a purported class action commenced against Sotheby's and Christie's in Canada will be dismissed because those claimants and potential claimants will be compensated through the Kruman settlement. Moreover, buyers and sellers who participate in the Kruman settlement must agree not to pursue similar claims against Sotheby's and Christie's in jurisdictions outside the United States.
The $20 million settlement will be recorded within special charges in Sotheby's results of operations for the year ended December 31, 2002 and will be funded in two payments of $10 million each upon preliminary and final court approval.
So on the financial front, Sotheby's continues to struggle despite seeing some decent sales. In its recent annual report, total auction sales (hammer price plus buyer's premium) increased 10% to $1.8 billion for the year ended December 31, 2002. Auction sales in North America increased 7% to $866.1 million. In Europe, auction sales increased 13% to $814.2 million, principally due to the impact of foreign currency translations.
Unfortunately, the company reported a second straight year of losses due largely to the problems surrounding the legal findings of price-fixing. The company reported a net loss in FY 2002 of $54,755,000 compared to the net loss of $41,696,000 during FY 2001, although it did show some improvement in the last quarter, according to unaudited documents released by the company. Revenues were actually up marginally by nearly $9 million from the year previous, but the annual report came as a sober reminder that Sotheby's still has major financial headaches.
The company now reports that it will let go an additional 50 employees in Europe on top of the 60 it has already let go in New York.
Sotheby's also noted in papers filed with the SEC that former majority stockholder of Class A stock Ronald Baron has continued to cut his holdings in the company, as the stock rose recently at least partly due to the general stock market surge. Six million of those shares were sold through Goldman Sachs in a private transaction--all at a price substantially below the recent peak of the market, which has since dropped and rose again along with the stock market roller coaster.
In advance of the closing of Sotheby's on-line auctions, the number of photographs offered has dropped precipitously--now down to under 50 lots at last look. This puts an end to Sotheby's fore ray into the world of Internet auctions, leaving the field to the more democratic (from a lot price standpoint only) eBay.
Meanwhile, more "good" news for Sotheby's: the former Sotheby's chairman, A. Alfred Taubman, is scheduled to be released early from prison because of good behavior, according to prison officials.
Taubman, 79, was serving a sentence of a year and a day at the Federal Medical Center in Rochester, MN, for his part in the price-fixing conspiracy. He was due to be released at the beginning of August, but now it looks like he will get out of jail somewhat earlier. Only in February, both Taubman and Sotheby's called a halt to the search for a buyer of Taubman's company stock. Taubman continues to hold a majority of the voting stock at the company despite being in jail for his involvement in the Sotheby's-Christie's price fixing scandal.