Sotheby’s on January 29th has released its plans for reallocation of capital to increase the economic return to shareholders. Bill Ruprecht, President and CEO of Sotheby’s, has announced a distribution of $ 300 million through a special dividend and has authorized a $150 million share repurchase program, primarily as part of a new policy to offset annual employee stock dilution, with approximately $25 million of shares being repurchased by the end of 2014. Going forward, the Company intends to return any excess capital to shareholders on an annual basis, primarily through a special dividend.
Sotheby’s anticipates efforts in two other areas over the next 12 to 24 months to unlock significant value for shareholders: additional debt-financing of the Sotheby’s Financial Services loan portfolio, which could result in the return of an additional $150 million to $200 million to shareholders; and an evaluation of its real estate holdings in New York and London. The Company is weighing the possibility of selling its York Avenue headquarters and relocating, or selling a portion of the building and remaining in reconfigured space. Sotheby’s is now conducting a bidding process to explore these alternatives and expects to choose a path shortly. The Company is also evaluating its New Bond Street property in London and intends to engage in a similar review process with that property. Sotheby’s also announced it will establish separate capital structures and financial policies for the Company’s two primary businesses – Agency (Auction and Private Sales) and Sotheby’s Financial Services. This structure will allow Sotheby’s to optimize funding and establish clear return thresholds for each business: 15% return on invested capital for the Agency business and 20% return on equity for Financial Services.
Sotheby’s said it is exploring increased investment in areas such as private sales, emerging markets, expansion of the brand into new categories, investment in art for resale and art loan growth, continued expansion of its digital platform, and new and complementary products or services.
Based on its recently completed cost structure review, Sotheby’s estimates $22 million in savings in professional fees, other general and administrative costs, direct costs of auction services and marketing expenses this year. No reductions in the workforce are planned. The shares of Sotheby’s will increase as 0.5% to $ 49.16 in early trading.
Immediate response of one of the shareholders of the company, Marcato Capital Management LP, a company in San Francisco, which holds 6.6 % of the shares of Sotheby’s. “Today’s announcement is a modest step in the right direction , but Sotheby’s can return more capital to shareholders and do it more quickly than expected from his plan.” The company says that Sotheby’s should return $ 1 billion of capital to shareholders within 12 months of using the income generated in 2013 and 2014 , excess liquidity in the financial statements , and capital freed by adequate financing of its activities in financial services and real estate .
Last October, Dan Loeb, holder of 9.3 % of the shares of Sotheby’s , has pointed the finger at Ruprecht , holding him responsible for the lower performance compared to rival Christie’s, using the phrase became famous: “Sotheby’ s is like an old master painting in desperate need of restoration. ”
But with the announcement launched on Wednesday, Sotheby’s has taken a step forward to meet the demands of shareholders and improve their returns, including those of Mr. Loeb.