Sotheby’s Reshuffles Cash to Fund Share Buyback

The auction house is eliminating its dividend and repatriating foreign earnings as it increases its share repurchase program by $200 million.
Katie Kuehner-HebertJanuary 25, 2016

Sotheby’s is scrapping its quarterly dividend and repatriating $381 million in foreign earnings to help fund a $200 million increase in its share buyback program.

The auction house had intended to reinvest the foreign earnings outside the United States indefinitely, shielding them from U.S. income taxes.

But in a regulatory filing, it said the expansion of the share buyback to $325 million and the need for cash in the United States to fund to other corporate strategic initiatives “have made it apparent that such amounts will instead be repatriated in the foreseeable future.”

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As a result of the repatriation, Sotheby’s expects to recognize a non-cash income tax charge of $63 million to $68 million (net of foreign tax credits) in the fourth quarter of 2015.

“The move to repatriate earnings is unusual for a U.S.-based multinational  many choose to reinvest cash earned overseas due to relatively high U.S. tax rates,” the BBC said.

Excluding the repatriation charge and a separate charge of 35 cents a share from cutting about 5% of its global workforce, Sotheby’s expects to report an adjusted per-share profit of $1.11 to $1.17 for the fourth quarter, above the 84 cents analysts have predicted and compared with $1.12 in the year-earlier period.

The elimination of the dividend, which has been in place for decades and has paid out 10 cents a share per quarter since August 2013, will save Sotheby’s nearly $27 million a year, with the capital being allocated to the share repurchase program.

“We believe that at this time, the best benefit for the shareholders is to use that capital to buy back shares, and that’s a better result for them as opposed to paying the dividend,” CEO Tad Smith said in an analyst call.

But some analysts questioned the decision to cut the entire dividend before there was more clarity on the health of the high-end art and stock markets.

“The stock is undervalued, on current earnings,” Kristine Koerber, an analyst at Barrington Research, told MarketWatch. “We just don’t know what the next few months will bring.”