Sotheby’s will return a special dividend of $300 million to shareholders in March. That is a key outcome of the company’s capital allocation and financial policies review that was initiated by the board of directors in September, 2013.
The company is taking several steps that demonstrate its ongoing commitment to creating and returning long-term value to shareholders and positioning Sotheby’s to capitalize on future business opportunities and best serve its clients.
“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 chairman, president and chief executive officer Bill Ruprecht.
In addition to the $300 million dividend, Sotheby’s board 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. It is also evaluating its New Bond Street property in London.
Sotheby’s will also 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.
“All of us at Sotheby’s are committed to growing with discipline. We are focused on running the business profitably while delivering value to our clients and shareholders, and we believe this plan strengthens our ability to accomplish these objectives,” said chief financial officer Patrick McClymont.