A few days ago, Richard Mcguire’s Marcato Capital Management disclosed – in a filing with the SEC – a 41% increase in its stake in Sothebys (NYSE:BID), a $2.9 billion market cap auctioneer of authenticated fine art, antiques and decorative art, jewelry and collectibles. The fund declared holding 6.57 million shares of the company’s Common Stock, following the addition of 1.93 million shares to its equity portfolio. The position accounts for 9.53% of the auctioneer’s Common Stock, and makes of Marcato Capital Management, the second-largest hedge fund shareholder of record at Sothebys (NYSE:BID).
Mr. McGuire has been betting on Sothebys (NYSE:BID) for a few quarters now. His fund first started its current stake in the company over the third quarter of 2013, when it acquired 3.36 million shares. Although the stock has lost more than 14% since then, Marcato has continued to acquire it, almost doubling its exposure in less than one year. The position, which already ranked amongst the fund’s top five picks by the end of the second quarter, is currently worth more than ¼ of a billion dollars.
Sothebys (NYSE:BID)’s stock currently trades at 21.7 times the company’s earnings, at a wide discount to the 48x P/E industry average. Despite its cheap valuation, the company boasts industry-leading margins and above average returns on equity and assets. In addition, the stock pays out a 0.97% dividend yield, which implies a quarterly dividend of $0.10 per share. In addition, Marcato Capital Management –and all the other shareholders at the company, received, in early-February a special dividend of $4.34 per share.
The only fund that outranks Marcato Capital Management in terms of stocks held is Dan Loeb’s Third Point LLC, which last disclosed ownership of 6.65 million shares of Sothebys (NYSE:BID), worth more than $279 million. As we have reported in several occasions in the past year, Third Point’s stake at Sothebys has an activist nature. Mr. Loeb first went activist in October, 2013, when his fund augmented its exposure from 3.9 million shares, to 6.35 million shares. In response, the Board of the company implemented a ‘poison pill’ to prevent certain shareholders from gaining control over it. However, Mr. Loeb took legal action, and lost. But, there is one fact that recently came to our attention: Sothebys (NYSE:BID) still had to settle with Mr. Loeb, and pay the $24.3 million bill for its litigation and proxy fight.
Marcato Capital Management was founded by Richard McGuire in 2010. Prior to this, Mr. McGuire worked at Bill Ackman’s Pershing Square. The fund invests in small and mid-size companies, with a focus consumer discretionary companies’ stocks, which make up for more than 46% of its second quarter equity portfolio’s total value.
Disclosure: Javier Hasse holds no position in any stocks or funds mentioned.