Sotheby's To Pay $300 Mln Special Dividend, Repurchase Shares

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(RTTNews.com) - Auction house Sotheby's ( BID ) said Wednesday that it will pay $300 million special dividend to shareholders in March. It 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 now conducting a bidding process to explore these alternatives and expects to choose a path shortly.

The company also said it evaluating its New Bond Street property in London and intends to engage in a similar review process with that property.

The moves are the result of the company's capital allocation and financial policies review that was initiated by the Board of Directors in September, 2013.

In addition, the company 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. Looking forward, the company intends to return any excess capital to shareholders on an annual basis, primarily through a special dividend.

The company board has declared a special dividend of $300 million or approximately $4.34 per share payable on 17 March 2014 to shareholders of record as of 12 February 2014.

The company 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 firm 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.

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 company said.

Responding to Sotheby's Capital Allocation and Financial Policy Review, Marcato Capital Management LP said that the announcement is a modest step in the right direction, but the company can comfortably return more capital to shareholders and do it more quickly than under its proposed plan.

Sotheby's can and should return a total of $1 billion of capital to shareholders within 12 months using the earnings generated in 2013 and 2014, excess cash on the balance sheet, and capital released from appropriate financing of its Financial Services business and its real estate, Marcato said.

Marcato Capital Management, which owns about 6.6% of the common shares outstanding of Sotheby's, said that the company can return this capital to shareholders and still maintain more than adequate liquidity to meet its long-term strategic objectives. Marcato encourages its fellow shareholders to continue to press this Board and management team to act urgently and return significant additional capital in 2014.

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