ARTnewsletter Archive

Taubman, Ariel Sell Off as Sotheby’s Stock Surges

With Sotheby’s stock price hitting record highs in recent months, former chairman A. Alfred Taubman, the largest shareholder, cut his stake in the company to 4.95 percent from 12.2 percent in mid-April. A week earlier, former majority shareholder Ariel Capital, a Chicago-based mutual fund manager, had sold its stake in the company, noting that the

NEW YORK—With Sotheby’s stock price hitting record highs in recent months, former chairman A. Alfred Taubman, the largest shareholder, cut his stake in the company to 4.95 percent from 12.2 percent in mid-April. A week earlier, former majority shareholder Ariel Capital, a Chicago-based mutual fund manager, had sold its stake in the company, noting that the stock had “appreciated near our estimate of private market value,” reports a company spokeswoman.

According to filings made in April with the Securities and Exchange Commission (S.E.C.), Taubman agreed to sell 3.9 million shares, while his wife, Judith Taubman, will sell 171,253 shares. The estimated proceeds of the combined Taubman stock sales amount to $124.1 million, the filings show. At the end of 2005, Ariel Capital owned approximately 7.5 million shares, a 12.8 percent holding valued then at $137.4 million. (The Ariel sale in early April made Taubman the largest shareholder once again—if only for a few days.)

Taubman spokesman Christopher Tennyson told ARTnewsletter that the Taubmans’ remaining stake represents a “very significant ownership in the company. While the Taubmans reevaluate their investments continually, they have great respect for the management of Sotheby’s and intend to be long-term owners of the stock.”

Sotheby’s did not comment on the recent sales. The auctioneer’s stock, fueled by strong earnings reports and favorable analyst reviews and ratings, has surged in recent months, from $15 in late October to a high of $31.26 on April 6. As ARTnewsletter went to press, the stock closed at $30.30, down 15 cents, on April 20.

Taubman’s share of the ownership and voting power had already been drastically reduced last fall (ANL, 9/13/05), when Sotheby’s announced a restructuring that effected a major change in the arrangement of its stock ownership: combining the auctioneer’s two classes of stock into a single configuration. The house said the change would make the company more attractive to investors, improve corporate governance and positively impact future earnings per share.

At that time Taubman, his family and affiliates exchanged more than 14 million Class B shares of Sotheby’s stock for $168 million in cash and 7.1 million Class A shares. The primary distinction between these two classes of shares was the type of voting rights they conferred on the holders. Before the restructuring, Taubman’s voting power represented 62 percent of the total votes outstanding, and he and his associates held 22 percent of the company. Since the September restructuring, one share now equals one vote.

Taubman’s sale came just a week after news that Ariel Capital had sold its entire holding. A spokeswoman for Ariel told ARTnewsletter that the company had purchased its stake when the stock was near a low in 2002. “This is not a reflection on [Sotheby’s] in any way. We still think highly of the company and its management,” she says. Ariel Capital promotes itself as a “slow and steady” investment firm and targets conservative, long-term investors.

Sotheby’s stock “has been quite strong, and it’s going through a logical ownership transition,” says George Sutton, a managing director at Craig Hallum, an institutional equity and investment-banking firm in Minneapolis. “If you look back a couple of years ago when the stock was around $10, that is what we would define as of interest to a value investor,” Sutton told ARTnewsletter.

With the recent rise in stock price, he notes, Sotheby’s may now be drawing the interest of growth-stock investors.

Along with the broader art market, sales and revenues at Sotheby’s have risen dramatically in recent years (ANL, 3/14/06). In March the house released 2005 results that Sotheby’s CEO William Ruprecht said were the “best in 15 years and, without question, one of Sotheby’s best years ever.” Auction and related revenues for 2005 hit $502 million—a $58.9 million, or 13 percent, increase over 2004. For its fourth quarter ended Dec. 31, 2005, Sotheby’s said, auction and related revenues rose to $200.6 million, marking its highest fourth quarter ever and representing a $25.1 million, or 14 percent, improvement over the previous fourth quarter.

The company’s income from continuing operations—a key measure of profitability—was $57.7 million, or 90 cents a share, for the fourth quarter, compared with $36.1 million, or 57 cents a share, in the previous fourth quarter. For the year 2005, Sotheby’s said, income from continuing operations—excluding a onetime license-fee revenue from a deal with Cendant (ANL, 3/2/04)—was up $29.1 million, or 85 percent, to $63.2 million.

“Very importantly, we see the momentum continuing into 2006,” Ruprecht told investors and analysts in a March conference call about the results.

According to information filed with the S.E.C., other major shareholders as of March 31 include Ruprecht (412,004 shares), Sotheby’s CFO William Sheridan (49,409 shares) and board of directors member Steven Dodge (62,853 shares as of Feb. 6).

As of Dec. 31, 2005, major institutional shareholders of Sotheby’s stock included United States Trust Company of New York (4.2 million shares, estimated at $77 million), Fidelity Management and Research Co. (2.7 million shares, estimated at $50 million), Ranier Investment Management (2.3 million shares, estimated at $42 million) and Neuberger Bergman LLC (1.8 million shares, estimated at $32.7 million).

  • Issues