NEW YORK (TheStreet) - Auction house Sotheby's (BID - Get Report) said on Wednesday it would consider a sale of its New York City headquarters as part of an effort to reshape the company's financial structure and deliver value to shareholders.
Sotheby's actions come after activist investor Daniel Loeb of Third Point Capital Management took a large stake in the company and criticized its executive pay packages. Third Point, which holds over 9% Sotheby's shares, recommended the company replace its CEO William Ruprecht and consider investing its excess capital in the works of art it sells. Loeb said such a move would not creating conflicts of interest between Sotheby's and its clients.
On Wednesday, Sotheby's took a different course.
The company's board of directors continues to support CEO Ruprecht and instead is focusing on returning capital to shareholders and streamlining the firm's operations.
Sotheby's said it will pay a $300 million special dividend to shareholders in March and that its board has authorized a $150 million share repurchase program to offset dilution from annual stock rewards to employees. The company also said it intends to return any excess capital to shareholders on an annual basis through special dividends.To improve its financial performance, Sotheby's also is looking into a sale of its York Avenue headquarters and relocating, or reconfiguring the building towards leases.
"Sotheby's is now conducting a bidding process to explore these alternatives and expects to choose a path shortly," the company said, while noting it is conducting a similar process for its New Bond Street offices in London. Finally, Sotheby's said it will establish separate capital structures and financial policies for the company's two main businesses; its Agency division where auctions and private sales are conducted, and its Sothebys's Financial Services unit. The company now expects that a better capital structure will allow for a 15% return on invested capital for the Agency business and a 20% return on equity for Financial Services. Sotheby's also said it has identified $22 million in other cost savings, generally on overhead administrative expenses. "The message we are delivering is clear -- we are returning meaningful capital to our shareholders now and in the future and establishing a framework that puts Sotheby's in the strongest position to compete and win in this marketplace while delivering value to our clients," said Ruprecht in a statement.
Sotheby's benefited from booming art markets during 2013, which saw some auctions break new records for the industry. Auction sales at the company reached $5.1 billion in 2013, with highlights including record sales of pieces from Andy Warhol, Norman Rockwell, El Greco and Georges Braque. The company also noted rising sales of Islamic and Chinese art. Sotheby's shares wereup over 6% in premarket trading to $52.00. The company's shares have risen by over 30% over the past 12-months and by nearly 500% over the past five years.
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