Sothebys (NYSE:BID) announced that it will evaluate its balance sheet and financial strategy after several well-known hedge fund managers acquired huge stakes in the international auction company.


Stakes in Sothebys

Nelson Peltz of Trian Fund Management owns 3 percent, Mick McGuire of Marcato Capital owns 6.6 percent, and Daniel Loeb of Third Point owns a 5.7 percent stake in Sothebys (NYSE:BID). Last month, Loeb indicated in his regulatory filing with the Securities and Exchange Commission (SEC) that he intends to engage in a dialog with the management of the company regarding potential changes in leadership and strategy.

Sothebys (NYSE:BID) announced its move two weeks after Loeb increased his stake in the company and indicated his intention. In a statement, the company’s CEO Bill Ruprecht said, “Sothebys is committed to healthy two-way communication with our shareholders as we pursue our common goal of a strong, growing, competitive Sothebys open to new opportunities.”

Ruprecht added that the company is considering raising dividends, repurchasing shares, and other factors such as the value of its real estate and potential tax issues.

“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.

Sothebys releases results of capital allocation

According to the international auction house, it will release the results of its capital allocation evaluation to investors early next year. Sothebys (NYSE:BID) said it will review its use of incremental debt in funding some of its business, credit rating, and capital requirements for certain strategic initiatives.

The auction house has long-term debt of $515 million and $699.6 million in cash as of June 30. Its debt-to-equity ratio is 49.5 percent versus the average 31.6 percent debt-to-equity ratio of peers.

During the second quarter, Sothebys (NYSE:BID) reported $304.8 million revenue. Its net income was $91.7 million, or $1.33 per diluted share, an increase of 7 percent compared with its net income in the same period in 2012. The board of directors of the company approved $0.10 per share dividend payments for the third quarter.

The stock price of Sothebys (NYSE:BID) is up by 1.33 percent to $48.03 per share at the time of this writing on Tuesday around 12:57 in the afternoon in New York.