| BOSTON, Sept 11
BOSTON, Sept 11 Hedge fund manager Mick McGuire
is not an art collector and has never felt the thrill of bidding
in a Sotheby's auction, where adrenaline spikes with
each multimillion-dollar sale of a Cezanne, Rothko or Picasso.
Still, he has ideas on how the 269-year-old auction house
might do better for shareholders, and since June has built up a
7 percent stake to allow him to take some of his proposals to
A former partner at William Ackman's Pershing Square Capital
Management, McGuire is now running Marcato Capital Management,
one of the country's hottest hedge funds. The Harvard MBA
graduate is relying on his expertise in analyzing balance sheets
in making his approach for Sotheby's, which attracts collectors
from all over the world.
Selling Sotheby's glass-front world headquarters on
Manhattan's upper East Side is just one possibility, and the
company's small lending business might rely more on debt than
cash, according to people familiar with McGuire's ideas but not
authorized to speak publicly.
On Wednesday, Sotheby's signaled it understands the hedge
fund's concerns, saying it will review financial strategies,
leaving the door open to raising its dividend and taking on
"Each of these options presents possible advantages and
disadvantages; all are complex," Sotheby's chairman and chief
executive Bill Ruprecht said in a statement. "We are determined
to fully exploring every avenue and we are committed to pursuing
return of capital alternatives," he said without mentioning
Marcato Capital Management or any other shareholder by name.
When McGuire's Marcato Capital Management started the
process of buying Sotheby's shares this summer, it marked the
37-year-old manager's fifth activist campaign in less than three
years of running his firm.
McGuire notified regulators and the company of his plans
with a 13-D filing in June. He was soon joined by others.
Three weeks later, Daniel Loeb's Third Point put out a
filing and now owns 5.7 percent. Nelson Peltz' Trian owns about
3 percent and analysts say he has ideas on improvements.
Representatives for the firms did not return calls.
While managers cannot work together, they can compare notes.
And people familiar with Marcato Capital Management's proposals
say they are likely to be complimentary to Loeb's ideas, which
may focus more on operational improvements.
Many activist investors make their demands for change
publicly. Loeb created a Website during his battle with Yahoo
and releases his missives to management in filings.
So far, McGuire has stayed out of the limelight by speaking
at only a handful of conferences while declining most
And up until now, even Loeb, who has an impressive art
collection, has been calm in this fight, saying only that he
planned to "engage in a dialogue" with Sotheby's.
At Marcato Capital Management in San Francisco, McGuire does
most of the work himself, including calling up chief executives
at target companies and creating the 100-slide power-point
presentations made famous by his former boss Bill Ackman.
Bets on real estate and agribusiness company Alexander &
Baldwin, and DineEquity, which operates fast
food restaurants IHOP and Applebee's, have been winners.
This year, Marcato Capital Management is up 17.1 percent,
keeping pace with the Standard & Poor's 500 Index and handily
beating the average hedge fund's 7 percent rise, said a person
familiar with the returns. Last year, it rose 29 percent while
the average hedge fund gained 7 percent.
In Sotheby's, McGuire and others found a one-of-a-kind
business that has been largely ignored by Wall Street analysts
and is still smarting from the effects of a price-fixing scheme
with rival Christie's two decades ago. Sotheby's paid a $45
million fine in the criminal case and its former chairman,
Alfred Taubman, went to prison.
Even as Sotheby's made blockbuster sales such as last year's
$120 million auction of Edvard Munch's "The Scream," several
shareholders worried about a lack of urgency at the top levels.
Profits have not been appropriately redeployed and capital
has not been used in the most intelligent way, some shareholders
have mused, pointing to the company's small lending business
that fronts clients' money if their paintings have not sold but
they would like to purchase another one.
In signaling that Sotheby's is ready to make some new
choices, CEO Ruprecht said the company "is committed to healthy
two-way communication with our shareholders." But the hedge
funds are likely to keep up the pressure, for a while at least.