Setting Sail on a Titanic Sale?

The downsides of wholesaling history

Left slightly adrift amid the hoopla over the 100th anniversary of the Titanic’s sinking is a very large, now very confidential sale of more than 5,000 artifacts scooped from the ocean floor on and around the wrecked ship. 

The company behind both the artifacts’ salvaging and their sale, Premier Exhibitions Inc. (NASDAQ: PRXI) through its RMS Titanic subsidiary, has had its own rough ride recently. 

Last month, PRXI’s stock crested at $3.75 a share in a short, sharp run-up of just a few weeks. Then the stock collided with a softening market and newly cautious investors, who sent its stock price foundering roughly 40 percent. The company announced it would sell its Titanic-related collections and exhibitions, bringing an expected $189 million or more to the company. 

After attracting what it called “multiple” viable offers ahead of the April 15 anniversary, the company suddenly cancelled a planned news conference and said it was in negotiations and would have no further comment. 

Then, on April 23, instead of announcing a sale, PRXI doubled down, announcing it was acquiring the assets of Arts & Exhibitions International, the touring exhibitions division of live entertainment giant AEG. 

The complicated transaction gives AEG a 10-percent stake in PRXI’s exhibition unit, and PRXI will pay off the acquisition with revenues solely from the newly acquired touring shows, such as two focused on King Tutankhamun and Queen Cleopatra. In effect, AEG has offloaded management of these shows to a specialist company in exchange for a piece of the action. 

PRXI also said the deal was “non-dilutive with respect to current shareholders' interest in Premier's Titanic assets,” and that a sale of those assets would still happen at some point. A few days later, on May 4, the company filed SEC documents saying the president of its Titanic subsidiary, Christopher Davino, had stepped down with the April 30 expiration of his employment agreement (he also resigned as a PRXI director). 

Now, Premier Exhibitions must navigate a truly titanic sale of those artifacts to justify its formerly hot price while sailing with a new partner, no CEO and ebbing post-anniversary heat for Titanic collectibles. No pressure, buddy. 

I would argue, as someone who specializes in finding the market value in historic artifacts and collectibles, that Premier has earned its headaches over the handling this sale. 

Make no mistake, smart investors have lots of opportunities to both enjoy the thrill of acquiring historic pieces and the financial buzz of making money if they sell those artifacts later. And the prices being returned in several small recent auctions have suggested a great deal of appetite for Titanic artifacts. 

But Premier’s wholesale approach seems all wrong to me. 

If you want to maximize value, sell those artifacts in individual lots instead of one giant bundle. Admittedly, for a big public company looking to make a sure-thing score in this market’s best moment, selling object by object would force PRXI to deal with 5,000 buyers and 5,000 sets of paperwork and potential annoyance. 

But the bigger the batch of collectibles on sale, the less the buyer emotional connection and attachment to individual pieces that can impart more value to any collectible. And PRXI will definitely need to maximize value. 

The company and its auctioneer have valued the collection at a whopping $189 million, an average of nearly $38,000 per artifact. 

That overall sale price does includes the exclusive legal right to continue salvaging other collectibles from the wreckage, which certainly has some enterprise value. 

But those salvage rights come with a downside too: a winning bidder also would have to assume significant additional investment and risk to exercise them. First off, there’s the expensive deep-sea recovery work, presumably by a team unfamiliar with the wreck (it’s 2.5 miles down in the tempestuous North Atlantic waters off Nova Scotia). 

And Premier’s recovery operations already have picked over the site eight times to pull up the material they’re selling now. How many worthwhile additional artifacts are still down there and relatively accessible? Is what’s left worth the cost to buy the salvaging rights and mount an expedition?  

There are other uncertainties haunting this whole deal. PRXI said in March that it had received about 20 inquiries. On April 4, the company delayed the auction because of “the level of interest ... and the late entry of additional potential bidders.” On April 10, PRXI cancelled a news conference scheduled for the next day, saying it was in negotiations with “multiple” parties and wouldn’t say more until negotiations concluded. 

The sale is being monitored by the federal district court that has handled the legal fight over Titanic salvaging rights for two decades. The judge may have something to say about whomever wins the auction. 

FInally, some in the public oppose any further prodding and poking of wreckage where 1,500 people died and some remains still lie. Leave the dead alone, they say, equating the Titanic with the World Trade Center. 

Personally, I think this is hooey. There’s nothing “evil,” as one anti-salvager put it, in either unearthing these artifacts or letting them end up in private collections. Collecting makes history real and tangible and present, instead of a long-forgotten disaster left at the bottom of the sea. Its reality and impact can’t be denied or ignored.

Remember, without collector interest and money, the Titanic almost certainly never would have been found. And without the promise of collector dollars, who could have mounted expensive recovery operations in dangerous high seas?

It may offend some professors, but the profit motive can be a wonderful motivator, and a wonderful aid to historic preservation that even museums can’t routinely match (and they never display most of their collections, either). 

At (ocean) bottom with the Titanic auction, however, is the biggest question facing PRXI: who is going to spend $189 million without clear title to do as they want with all these collectibles? 

Now, I realize some other investors have a very different opinion of what’s possible here. Seeking Alpha contributor Jeffrey Moore, for one, is willing to take a flyer on a small amount of the company’s stock, betting they’ll score big (or big enough) in the auction to generate a lot of spare cash that might then become a stock dividend. Maybe. 

As Moore points out, the only way Titanic collectibles make sense for an exhibition business based on them is to have a whole bunch of them aggregated already. But the traveling exhibition business is a dicey one (which may explain why Premier is diving out of it), and whomever buys this stuff may intend other opportunities with it.

The recent $2.1 billion sale of the Los Angeles Dodgers baseball team shows that anything is possible when personal sentiment, rare items and loads of money mix together. But what happens to PRXI’s sinking stock price if it can’t salvage big dollars in this wholesale selloff of history?