Shares of Sotheby's (NYSE: BID) traded up more than 55% on Monday morning after the auction specialist agreed to a $3.7 billion buyout offer. The proposed deal provides a massive premium to recent prices, but is considerably more modest when compared with the levels Sotheby's traded at this time last year.
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Sotheby's said before markets opened Monday it had agreed to be acquired by BidFair USA, an entity owned by entrepreneur Patrick Drahi. Terms of the deal call for BidFair to pay $57 in cash for each share of Sotheby's, a premium of 61% to the target's June 14 closing price.
Sotheby's CEO, Tad Smith, in a statement announcing the deal praised Drahi's "long-term view," and said that "this acquisition will provide Sotheby's with the opportunity to accelerate the successful program of growth initiatives of the past several years in a more flexible private environment."
The deal would mark the end to Sotheby's more than 30 years as a publicly traded company. The past few quarters have been unpleasant ones for investors, with the stock down more than 40% over the year prior to the deal announcement due to weak earnings and concern that high-end consumers are going to slow their spending as the economy and stock markets cool.
In fact, while the offer price is a substantial premium to Friday's close, the shares are still down 5% over the past year.
Sotheby's stock price has largely swung between $24 per share and $60 per share throughout this decade, as investors have reacted to perceived strengthening and weakening of demand for high-end goods.
Smith's comments clearly suggest he believes the market's shortsightedness makes it difficult for him to run his business. Time will tell whether he can extract more value as a private company, but it appears investors won't have the opportunity to share in that upside even if it materializes.
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