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Sotheby's Reviews Capital Allocation, Financial Policies

Sep 11, 2013 11:37 AM   By Jeff Miller
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RAPAPORT... Sotheby’s informed shareholders today that it would review its capital allocation and financial policies with the intent of releasing its findings in early 2014.  Sotheby’s has undertaken restructuring projects in the past couple of years that helped to boost financial performance and generate additional capital to invest in new strategic growth initiatives, strengthen the balance sheet and build liquidity to pursue transaction opportunities such as lending and auction guarantees.

Sotheby's has restructured long-term debt, resulting in an annual interest expense savings of $5 million; increased the buyer’s premium rate, which contributed an additional $20 million of revenue in the second quarter alone; improved the auction commission margin and is preparing to open a new branded contemporary private sales gallery – S|2 – in London shortly. Additionally, Sotheby's reported it is continuing  to invest in growing its business in China and other emerging markets and is allocating funds to improve the web platform.

Given this progress, the board of Sotheby's explained that a capital allocation review was the natural next step to improve the cost of capital and manage financial policies. Bill Ruprecht, the chairman of Sotheby's, explained that the firm continues to evaluate return on capital, while considering such measures as share buyback programs and/or increasing dividends,  keeping in mind a need to invest in the future to strengthen Sotheby's competitive position.

“In that context, our assessment will take into account some key considerations including, but not limited to, the potential use of incremental debt to fund segments of our operations, the company’s credit rating, ongoing funding requirements for certain strategic initiatives both announced and contemplated, the value of our real estate properties and our unique premises requirements and the potential tax implications of any of the actions we are considering,” he added.

“Each of these options present possible advantages and disadvantages -- all are complex. We are determined to fully exploring every avenue and we are committed to pursuing return of capital alternatives,” said Ruprecht.

Sotheby's shares were up about 37 percent year on year to $47.84 in New York at midday on September 11.

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Tags: allocation, capital, financial policies, investment, Jeff Miller, restructuring, shares, Sotheby's
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