(Updates with share price in fifth paragraph.)
Jan. 29 (Bloomberg) -- Sotheby’s, the auction house under pressure from hedge-fund manager Daniel Loeb to improve its competitive position, will pay a $300 million special dividend and said it may sell real estate to hand back more cash to shareholders.
The company is considering selling its New York headquarters and reviewing its real estate in London, according to a statement today. In addition to the dividend, payable in March, the company plans to return capital through a $150 million stock buyback and additional debt financing.
“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,” Chief Executive Officer Bill Ruprecht said in the statement.
The auctioneer began examining its capital allocation and financial policies in September, a review that included “constructive input from our investors,” Ruprecht said during a conference call today. Sotheby’s largest shareholder is Loeb’s Third Point LLC, which acquired a 9.2 percent stake in the company as of Oct. 1. Loeb at the time called for Ruprecht to step down and criticized Sotheby’s executive compensation, international business and competitive position.
Sotheby fell 0.4 percent to $48.67 at 11:20 a.m. in New York, after rising as much as 2.8 percent earlier. The stock has gained 35 percent in the past 12 months.
Loeb didn’t immediately respond to e-mails seeking comment. Marcato Capital Management LLC, an activist investor with a 6.6 percent stake in Sotheby’s, said today’s announcement was “a modest step in a right direction.”
“Sotheby’s can and should return a total of $1 billion of capital to shareholders within 12 months,” Mick McGuire, founder and managing partner of the San Francisco-based firm, said in a statement. “We encourage our fellow shareholders to continue to press this board and management team to act urgently and return significant additional capital in 2014.”
Sotheby’s board has authorized the share buyback 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, it said in the statement. The company plans to unlock additional $150 million to $200 million for shareholders through debt-financing of its financial- services holdings.
Real estate in New York and London is another area under review, Sotheby’s said. The company is weighing options for its 10-story York Avenue headquarters, including selling the building and relocating elsewhere in New York or selling several floors and reconfiguring the rest of the space.
Sotheby’s said it will establish separate capital structures and financial policies for its two primary businesses -- the agency, comprising auctions and private sales, and financial services -- setting return targets for each. It aims to generate a 15 percent return on invested capital for the agency business and 20 percent return on equity for financial services, Sotheby’s said.
Sotheby’s said it will cut expenses by about $22 million this year, or about 10 percent of its 2012 operating income, by reducing professional fees, auction services, administrative and marketing expenses.
--Editors: Christian Baumgaertel, Sree Vidya Bhaktavatsalam