Sotheby's new CEO to focus on boosting 271-year-old company's brand
Sotheby's new chief executive Tad Smith says he will focus on expanding the 271-year-old auction house's brand and formulating a five-year plan to boost growth and profitability.
Smith, a media and entertainment executive who had been president and chief executive of Madison Square Garden since February 2014, begins on March 31, the New York-based auction house said. Smith, 49, replaces William Ruprecht, who had been under pressure from billionaire activist investor Daniel Loeb last year to cut costs and increase shareholder value.
Sotheby's has failed to turn record auction volumes into higher profit. Loeb, founder of hedge fund Third Point, in May gained a seat for himself and two of his candidates on the company's board of directors after pushing for change. Six months later, Sotheby's announced Ruprecht's resignation.
Sotheby's Tad Smith, right, is writing a five-year plan. Getty Images
Smith said during a conference call with investors that he'll develop a growth strategy, accelerate the auction house's use of technology and "allocate capital effectively". He didn't provide details.
"The brand is already extended in three different ways," Smith says, referring to Sotheby's key business areas of financial services, private sales and public auctions. The question is to determine the "key attributes of that brand" and "how to create growth avenues," he says.
Sotheby's says it will separate the chief executive and chairman positions. Domenico De Sole, Sotheby's lead independent director, is replacing Mr Ruprecht as chairman of the board of directors.
"Tad is a great strategist," De Sole said during the call. "He really understands brands and brand building. He is comfortable with technology and also he does know how to manage a global sales force across different channels. He's driven revenue and profitability growth at his former company."
Another activist investor, Marcato Capital Management, has urged Sotheby's board to approve a $US500 million stock buyback, following the company's announcement that it was suspending capital returns to shareholders during its CEO search. Marcato, the company's largest shareholder after Third Point, also criticised Sotheby's "poor" returns and has pushed for chief financial officer Patrick McClymont to be replaced.
Business, not art, background
David Schick, an analyst at Stifel Financial, says in a research note that Smith offers shareholders "broad-reaching" business experience rather than an art background. Schick has a buy rating on Sotheby's.
Smith, who has also worked at Cablevision Systems and Reed Elsevier Group's Reed Business Information division, is an adjunct professor at the Stern school of business at New York University, where he has taught the course Strategy and Finance for Entertainment, Media and Technology Companies for the past 15 years, Sotheby's says.
Smith's diverse experience in media, business information and the internet "should be a positive, as Sotheby's may evolve into a strong lifestyle brand," Oliver Chen, an analyst and managing director with Cowen & Co, writes in a research report. Chen has a "market perform" rating on Sotheby's.
Sotheby's had record auction sales in 2014 of $US6.1 billion, with contemporary art leading the way with $US1.7 billion in sales, up 20.3 per cent.
Revenue from art and collectibles sales in 2014 totalled $US825.1 million, up 4 per cent from $US793.6 million in 2013. Profit fell 9 per cent as net income declined to $US117.8 million, or $US1.69 a share, in the 12 months ended December 31.
"We do have one of the most amazing brands in the world," De Sole says.
Ruprecht joined Sotheby's in 1980 and worked in various positions including serving as executive vice-president and director of marketing. He had served as chief executive since 2000.
Sotheby's had $US7.6 million in compensation-related expenses for Ruprecht in the fourth quarter, including a $US4 million severance, the auction house says.
Bloomberg
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