Sotheby's Holdings, Inc.'s largest shareholders, A. Alfred Taubman, his family and affiliates, have exchanged 14,034,158 class B shares of the company owned by them for $168 million in cash and 7.1 million class A shares of the company. As a result of the transaction, the Sotheby's dual class super-voting share structure, which has been in place since its initial public offering in 1988, has been eliminated, and all remaining class B shares (which previously carried ten votes per share) have been automatically converted to class A shares (which carry one vote per share) on a one-for-one basis pursuant to the company's charter. With this exchange, the total number of shares outstanding has decreased by approximately 11% to 57.3 million shares. There is now a single class of common stock outstanding with each share entitled to one vote. The Taubman family now owns 7.1 million shares, representing 12.4% of total shares and votes outstanding. Prior to this transaction, the 14,034,158 class B shares owned by the Taubman family represented approximately 22% of the total shares outstanding and 62% of the total votes outstanding. Each class B share carried ten votes per share and the class B shares were entitled to elect 75% of the members of Sotheby's board of directors.
Sotheby's Holdings, Inc.'s Chairman Michael I. Sovern said: "The board of directors believes it is in the long-term interests of Sotheby's and all Sotheby's shareholders to eliminate the controlling rights of the class B shareholders and combine our two classes of stock into a single structure, one much more attractive to investors which allows governance more consistent with the best practices of public companies. We also anticipate that the transaction will have an overall positive impact on future earnings per share as we will have significantly reduced the number of shares outstanding."
Sovern continued, "We appreciate the clear indication of confidence in the strength of our business and the endorsement of our management team that the Taubman family's decision to remain as significant shareholders represents."
Actually, that "confidence" and "endorsement" looked more like the SEC rules and Sotheby's handcuffed the Taubmans to that part of the deal. As the Sotheby's release noted: " Under the terms of the transaction agreement entered into between the Taubman family and Sotheby's, the Taubman family also has agreed not to sell shares of the Company until September 2007, except pursuant to aggregate sales at levels permitted under Rule 144 under the Securities Act of 1933. In addition, the Taubman family has agreed to various standstill provisions in connection with the transaction."
It was no secret that Sotheby's was still suffering from the connection to Taubman and his illegal activities while Sotheby's chairman. Taubman served a 10-month jail sentence in 2003-2004, and other investors were chaffing from what they considered cavalier actions by Taubman, who maintained family board control despite his white-collar crime. Sotheby's stock jumped nearly 5% on the news.
President and CEO Bill Ruprecht said: "The significant improvement in our results over the last several years and the strong financial position the company now enjoys have made this important transaction possible. We have just reported the best second quarter of revenues in our history and the best profits since 1990 and we are optimistic about the continued strength of the art auction market.
"This transaction aligns voting rights with the economic interests of our shareholders and eliminates the inefficiencies of a dual class share structure. We believe that simplifying our structure will enhance share liquidity, increase our strategic and financing flexibility, have a positive impact on earnings per share and place all of our shareholders on an equal footing. We are confident of our position in the marketplace and our prospects and believe that this transaction is a very prudent use of our financial resources."
Sotheby's says it will use cash on hand and additional borrowings to finance the transaction.
Robert S. Taubman, Taubman senior's son, will remain on the board, but will step down as a member of the executive and nominating committees. In addition, Jeffrey Miro, a current member of the board, has indicated he does not intend to seek re-election at the 2006 annual meeting of shareholders.