Marcato Capital Slams Sothebys Board, Demands $500M Stock Buyback

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Marcato Capital Management, the activist hedge fund headed by Mick McGuire criticized the board and management of Sothebys of “willful neglect” and demanded an immediate stock buy back worth $500 million.

Marcato Capital is also pushing the leadership of Sothebys to remove Patrick McClymont from his position as chief financial officer.

Marcato Capital criticized Sothebys returns on capital

In a letter to Dominico De Sole, lead independent director of Sothebys, Marcato Capital emphasized his disappointment on the company’s return on capital.

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According to the activist hedge fund, a substantial portion of Sothebys invested capital continues to “earn a poor return or worse yet, earns no return at all,” despite its discussion with the members of the board of the company. Marcato Capital also accused the leadership of Sothebys of embracing misguided policies.

“This willful neglect on the part of both management and the Finance Committee of the board must end urgently…Shareholders deserve leadership that combines sound business strategy with skilled financial management. For the duration of Marcato’s investment, we have enjoyed neither,” said Marcato Capital.

The activist hedge fund also said, “We feel a responsibility to other shareholders to express our deep concern with the governance and executive judgment on matters of capital allocation and hold this board and management accountable.”

Marcato Capital is the second largest shareholder of Sothebys with 7.4% stake in the company.  Market observers suggested that Marcato Capital’s criticism against the board and management of Sothebys will create a dispute with its fellow activist hedge fund Third Point, the largest shareholder with 9.6% stake in the company. Daniel Loeb is a member of  the board of the auction house.

Sothebys recently suspended capital returns to shareholders

Marcato Capital’s move came after Sothebys decision to suspend its capital returns to shareholders as it searches for a new CEO. The board of directors of the company believed that it is the best interest for its shareholders to preserve flexibility.

“As we conduct our search for a new Chief Executive to lead Sotheby’s, we decided it is best to wait until a new leader is in place before making significant decisions about capital allocation. Our search is moving forward in a disciplined and thoughtful manner,’ said De Sole in a previous statement.

Commenting on the demand of Marcato Capital, Andrew Gully, a spokesman for Sothebys said the company stands by its decision regarding its capital allocation.

The stock price of Sothebys increased almost 2% to $44.70 per share at the time of this writing, around 3:11 in the afternoon in New York.