Sothebys To Sell Headquarters Amid Activist Pressure

Updated on

Sothebys (NYSE:BID) is selling its headquarters in Manhattan amid pressures from activist shareholders, according to report from The Wall Street Journal based on sources familiar with the situation.

Sothebys To Sell Headquarters Amid Activist Pressure

Sothebys evaluating balance sheet and strategy

The international auction company recently announced that it would evaluate its balance sheet and financial strategy after hedge fund managers Daniel Loeb, Mick McGuire, and Nelson Peltz acquired huge stakes in Sothebys (NYSE:BID). Their collective stockholdings in the company is more than 15 percent.

CEO Bill Ruprecht said the company is considering different strategies such as raising dividends, sales buyback and exploring options for its real estate, to strengthen competitiveness and open new opportunities. Sothebys (NYSE:BID) stated in its previous earning call that it is assessing the value of its headquarters in Manhattan, but it had no plans to move.

Sales of Manhattan property

According to the WSJ, the company engaged the services of Eastdil Secured to manage the sale of its 10-story property in Manhattan. Several interested parties already submitted initial offers for the edifice. It is still uncertain if a second round of bidding will take place.  Sothebys spokesperson Andrew Gully said, “It’s premature to speculate, as the process is still continuing.”

Based on a regulatory filing, Sothebys (NYSE:BID) acquired the building for $370 million from RFR Holdings.

Meanwhile, analysts at Stifel noted that Sothebys is $166.4mm in outstanding guarantees and supported by $23.5 mm of irrevocable bids. According to the analyst, the guarantees help Sothebys remain competitive against Christie’s and its commission margins in the fourth quarter of this year.

Sothebys’ value to unlock

Stifel analysts David Schick, Taylor Labarr, and Raymond Stochel believe that Sothebys (NYSE:BID) has “many pockets of value to unlock,” such as real estate, expense timing, license revenue, and shareholder cash returns.

On the other hand, analysts at Citi Research said that the company would be able to obtain greater value by re-evaluating the size of its real estate assets in New York and London, expanding into more lower-value property that might offer higher margins, change management teams, and leveraging the Sothebys brand into other luxury sectors.

The analysts also suggested the expansion of its auction and private sale into high-end retail centers, poaching contemporary Asian business-getters using stock options as compensation, and an Art Fund Subsidiary to invest in L-T undervalued segments of the market.

High-end lot offers

According to Citi Research analysts Oliver Chen and Nancy Hiliker, an expanding product base is beneficial for Sothebys (NYSE:BID) to offset its downward margin pressure from high-end lot offers. The company reported a margin of 15.3 percent in the second quarter down from 16.3 percent last year.

They maintained a neutral rating for the shares of Sothebys (NYSE:BID) due to pressures on margins and weak EPS growth of 3 percent, which would like to continue. They projected that a special situation may likely occur over the next 9 months that could cause a decline in stock multiple to the sector average of 17x compared with its current multiple at 23x.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!