Fighting with billionaire activist hedge-fund investor Daniel Loeb can get expensive.
A proxy battle cost Sotheby’s $24.3 million in the first half of this year, the New York-based auction house said today as it reported second-quarter earnings. The amount is larger than the $22 million expense reduction the company announced earlier this year. The fight ended in May when Sotheby’s appointed Loeb to its board.
Sotheby’s said it incurred the charges for advisory, legal and other fees associated with the proxy contest. Second-quarter profit fell 15 percent on higher tax expenses, Sotheby’s said in a statement.
“We do expect to recover a portion of the professional service fee related to the litigation,” Patrick McClymont, Sotheby’s chief financial officer, said in a conference call with investors. “However, the amount of the eventual insurance recovery is currently uncertain.”
Sotheby’s fell 9.1 percent to $37 at 12:18 p.m. in New York trading, the biggest decline since February. The shares have declined 22 percent this year including reinvested dividends.
Net income in the three months ended June 30 declined to $77.6 million, or $1.11 a share, from $91.7 million, or $1.33 a share, in the same period last year, Sotheby’s said today in a statement. Excluding some items, adjusted earnings of $1.26 cents a share missed the $1.43 estimate of seven analysts in a Bloomberg survey.
Sotheby’s said its effective tax rate increased to 39 percent from 23 percent, due to an accrual of U.S. taxes on the earnings of foreign subsidiaries in 2014 and the impact of a non-recurring $6.8 million tax benefit recorded in the second quarter of 2013.
Revenue in the second quarter rose 10 percent to $335.8 million, missing the $345.2 million estimated by six analysts in a Bloomberg survey. The auction house’s biggest sales are held in the second and fourth quarters.
Sotheby’s said it had strong auction results in Hong Kong and London. Net auction sales in the first half of the year increased 24 percent to $2.7 billion, Sotheby’s said. It sold 487 lots for more than $1 million during this period and 26 percent of buyers were new to Sotheby’s, the auction house said.
The company last month said it expects to cut some jobs by the end of the year and take an employee-related restructuring charge of about $13 million.
Sotheby’s on May 5 agreed to appoint Loeb, founder of Third Point LLC, and two of his candidates to its board of directors, ending a closely watched proxy fight between the auction house and its largest shareholder. The fund manager had been pushing the company to become more profitable and criticized its “deteriorating” competitive position. Elissa Doyle, a Third Point spokeswoman, didn’t immediately return a call for comment.
Sotheby’s Impressionist and modern art sales in London in June brought $247.3 million. The highlight of the sale was Claude Monet’s “Nympheas,” which fetched $54.1 million.
Auction commission margins fell during the second quarter to 15.2 percent from 15.9 percent a year earlier as Sotheby’s competed for high-value consignments, McClymont said.
The number of private sales increased by 40 percent so far this year, McClymont said on the call. Commissions from private sales fell $9.7 million, or 24 percent, in the first half of the year from the year-earlier period because of a lack of many big-ticket items, he said.
Last year’s results for private sales were skewed by several “$100 million-plus” transactions, William Ruprecht, Sotheby’s chief executive officer, said during the call.
“I don’t believe there’s been a fundamental shift in demand for high value works,” Ruprecht said. “I don’t see any particular thunder clouds there.”
Among future auction highlights, Ruprecht flagged the “Ballerina Butterfly” brooch, a 26.27-carat brown yellow diamond and conch pearl co-designed by “Sex and the City” actress Sarah Jessica Parker. Estimated at HK$6 million ($774,053) to HK$7 million, it will appear in Sotheby’s October auctions in Hong Kong and the proceeds will to benefit the New York City Ballet, where Parker is a trustee.
In November, Sotheby’s will offer The Henry Graves Supercomplication, a 1933 timepiece by Patek Philippe. The pocket watch is estimated at more than 15 million Swiss francs ($16.6 million). In 1999, it sold for $11 million, which remains the record price for a watch at auction.