Breaking Views gives Patrick McClymont a big pat on the back for yesterday’s capital allocation presentation. Citing other companies under attack by activists, Breaking Views pointed to a more balance C-suite as a quick way to boost confidence and the stock price. That may come for Sotheby’s too but so far the stock has been holding its own even while caught in the surrounding market downdraft.
The review undertaken by Patrick McClymont, the former Goldman Sachs investment banker hired as Sotheby’s finance chief in September, looks thorough. He has concluded that the firm’s art auction and private sales business should be funded separately from its art lending activities. Using more outside leverage for the finance side will help release cash to pay the dividend.
Mr. McClymont has also identified $22 million in cost cuts this year, roughly 10 percent of analysts’ estimated pretax profit, according to Thomson Reuters. That should somewhat appease Mr. Loeb, whose broadside last fall included claims of wasteful spending. Mr. McClymont also set out investment targets for the newly named agency and financial services businesses — a 15 percent return on invested capital and a 20 percent return on equity, respectively — in the absence of which, capital would be periodically returned to shareholders.
It was all rational and laid out with unusual clarity, which pleased analysts on Wednesday’s conference call. It should also show Sotheby’s shareholders that there’s a transparent framework in place, even if some might argue the company could have been more aggressive and paid out a bigger sum.