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UPDATE 1-Sotheby's to pay special dividend, buy back shares

Siddharth Cavale and Svea Herbst-Bayliss
Wednesday, 29 Jan 2014 | 9:58 AM ET

BOSTON, Jan 29 (Reuters) - Auction house Sotheby's said on Wednesday it will return $450 million to investors through a special dividend and by buying back shares, months after it said it would review its finances amid pressure from several prominent hedge funds.

Sotheby's shares were unchanged at $48.88.

The New York-based company said it would pay shareholders a $300 million special dividend in March and buy back stock worth $150 million under a new share repurchase program.

The 270-year old auction house will also separate its capital structures and financial policies for the company's two main businesses: Agency, which involves auction and private sales, and Financial Services.

"The message we are delivering is clear - we are returning meaningful capital to our shareholders now and in the future and establishing a framework that puts Sotheby's in the strongest position to compete and win in this marketplace," Sotheby's Chief Executive Officer Bill Ruprecht said in a statement.

The moves were taken in light of pressure from shareholders Daniel Loeb, who runs $14 billion Third Point LLC, and Mick McGuire, who runs $2.3 billion Marcato Capital Management, who had been privately and publicly pushing the company to make changes for the last six months.

But the moves do not go far enough for Marcato, which said in response that Sotheby's should return at least twice as much to shareholders.

"Sotheby's can and should return a total of $1 billion of capital to shareholders within 12 months," the hedge fund said, adding that Sotheby's can afford this sum and still maintain more than enough liquidity to meet long-term strategic objectives.

Even after Ruprecht said in the fall that the company would review its business, the pressure from the hedge funds did not let up.

In October, Loeb, known for writing sharply worded letters to chief executives, called on Ruprecht to step down and asked for a seat on the board. He called the auction house "an old master painting in desperate need of restoration."

McGuire had been pressing the company to sell off its glass-front world headquarters on the Upper East Side in New York and change how it finances art purchases, relying more on debt than cash.

Loeb's and McGuire's funds rank among the industry's best performers last year, each chalking up gains of more than 20 percent while the average hedge fund gained 9 percent.