UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 6)*
SOTHEBYS
(Name of Issuer)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
835898107
(CUSIP Number)
Neil S. Bhatia, Esq.
Marcato Capital Management LP
One Montgomery Street, Suite 3250
San Francisco, CA 94104
(415) 796-6350
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
COPIES TO:
Jeffrey L. Kochian, Esq.
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
(212) 872-1000
February 20, 2015
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule §240.13d-7 for other parties to whom copies are to be sent.
* | The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
CUSIP No. 835898107
1 | Names of Reporting Persons
MARCATO CAPITAL MANAGEMENT LP | |||||
2 | Check the Appropriate Box If a Member of a Group (See Instructions)
a. ¨ b. x | |||||
3 | SEC Use Only
| |||||
4 | Source of Funds (See Instructions)
AF | |||||
5 | Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)
¨ | |||||
6 | Citizenship or Place of Organization
DELAWARE | |||||
Number of Shares Beneficially Owned By Each Reporting Person With
|
7 | Sole Voting Power
0 | ||||
8 | Shared Voting Power
6,571,806 | |||||
9 | Sole Dispositive Power
0 | |||||
10 | Shared Dispositive Power
6,571,806 | |||||
11 |
Aggregate Amount Beneficially Owned by Each Reporting Person
6,571,806 | |||||
12 | Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)
¨ | |||||
13 | Percent of Class Represented By Amount in Row (11)
9.53% | |||||
14 | Type of Reporting Person (See Instructions)
IA |
CUSIP No. 835898107
1 | Names of Reporting Persons
RICHARD T. MCGUIRE III | |||||
2 | Check the Appropriate Box If a Member of a Group (See Instructions)
a. ¨ b. x | |||||
3 | SEC Use Only
| |||||
4 | Source of Funds (See Instructions)
AF | |||||
5 | Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)
¨ | |||||
6 | Citizenship or Place of Organization
UNITED STATES OF AMERICA | |||||
Number of Shares Beneficially Owned By Each Reporting Person With
|
7 | Sole Voting Power
0 | ||||
8 | Shared Voting Power
6,571,806 | |||||
9 | Sole Dispositive Power
0 | |||||
10 | Shared Dispositive Power
6,571,806 | |||||
11 |
Aggregate Amount Beneficially Owned by Each Reporting Person
6,571,806 | |||||
12 | Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)
¨ | |||||
13 | Percent of Class Represented By Amount in Row (11)
9.53% | |||||
14 | Type of Reporting Person (See Instructions)
IN |
CUSIP No. 835898107
1 | Names of Reporting Persons
MARCATO, L.P. | |||||
2 | Check the Appropriate Box If a Member of a Group (See Instructions)
a. ¨ b. x | |||||
3 | SEC Use Only
| |||||
4 | Source of Funds (See Instructions)
WC | |||||
5 | Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)
¨ | |||||
6 | Citizenship or Place of Organization
DELAWARE | |||||
Number of Shares Beneficially Owned By Each Reporting Person With
|
7 | Sole Voting Power
0 | ||||
8 | Shared Voting Power
1,529,210 | |||||
9 | Sole Dispositive Power
0 | |||||
10 | Shared Dispositive Power
1,529,210 | |||||
11 |
Aggregate Amount Beneficially Owned by Each Reporting Person
1,529,210 | |||||
12 | Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)
¨ | |||||
13 | Percent of Class Represented By Amount in Row (11)
2.22% | |||||
14 | Type of Reporting Person (See Instructions)
PN |
CUSIP No. 835898107
1 | Names of Reporting Persons
MARCATO II, L.P. | |||||
2 | Check the Appropriate Box If a Member of a Group (See Instructions)
a. ¨ b. x | |||||
3 | SEC Use Only
| |||||
4 | Source of Funds (See Instructions)
WC | |||||
5 | Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)
¨ | |||||
6 | Citizenship or Place of Organization
DELAWARE | |||||
Number of Shares Beneficially Owned By Each Reporting Person With
|
7 | Sole Voting Power
0 | ||||
8 | Shared Voting Power
117,754 | |||||
9 | Sole Dispositive Power
0 | |||||
10 | Shared Dispositive Power
117,754 | |||||
11 |
Aggregate Amount Beneficially Owned by Each Reporting Person
117,754 | |||||
12 | Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)
¨ | |||||
13 | Percent of Class Represented By Amount in Row (11)
0.17% | |||||
14 | Type of Reporting Person (See Instructions)
PN |
CUSIP No. 835898107
1 | Names of Reporting Persons
MARCATO INTERNATIONAL MASTER FUND, LTD. | |||||
2 | Check the Appropriate Box If a Member of a Group (See Instructions)
a. ¨ b. x | |||||
3 | SEC Use Only
| |||||
4 | Source of Funds (See Instructions)
WC | |||||
5 | Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)
¨ | |||||
6 | Citizenship or Place of Organization
CAYMAN ISLANDS | |||||
Number of Shares Beneficially Owned By Each Reporting Person With
|
7 | Sole Voting Power
0 | ||||
8 | Shared Voting Power
4,924,842 | |||||
9 | Sole Dispositive Power
0 | |||||
10 | Shared Dispositive Power
4,924,842 | |||||
11 |
Aggregate Amount Beneficially Owned by Each Reporting Person
4,924,842 | |||||
12 | Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)
¨ | |||||
13 | Percent of Class Represented By Amount in Row (11)
7.14% | |||||
14 | Type of Reporting Person (See Instructions)
OO |
CUSIP No. 835898107
SCHEDULE 13D
This Amendment No. 6 supplements the information set forth in the Schedule 13D filed by the Reporting Persons with the United States Securities and Exchange Commission (the SEC) on July 30, 2013, as amended from time to time (the Schedule 13D), relating to Common Stock, par value $0.01 per share (the Shares), of Sothebys, a Delaware corporation (the Issuer). All capitalized terms contained herein but not otherwise defined shall have the meanings ascribed to such terms in the Schedule 13D.
The information set forth in response to each separate Item below shall be deemed to be a response to all Items where such information is relevant. The Schedule 13D is hereby supplementally amended as follows:
Item 3. | Source and Amount of Funds or Other Consideration. |
The responses to Items 4, 5 and 6 of the Schedule 13D are incorporated herein by reference.
The net investment costs (including commissions, if any) of the Shares directly owned by the private investment funds advised by Marcato is approximately $204,025,017.
Item 4. | Purpose of Transaction. |
The responses to Items 3, 5 and 6 of the Schedule 13D are incorporated herein by reference.
Attached hereto is a letter (the Letter) sent by Marcato to Domenico De Sole, Lead Independent Director of the Issuer, in which Marcato details suggestions regarding the Issuers capital allocation policies that Marcato believes will enhance shareholder value. The Letter is filed as Exhibit 5 and is incorporated herein by reference.
Item 5. | Interest in Securities of the Issuer. |
(a)(e) As of the date hereof, (i) Marcato and Mr. McGuire may be deemed to be the beneficial owners of 6,571,806 Shares (the Marcato Shares) constituting 9.53% of the Shares, (ii) Marcato, L.P. may be deemed to be the beneficial owner of 1,529,210 Shares, constituting 2.22% of the Shares, (iii) Marcato II, L.P. may be deemed to be the beneficial owner of 117,754 Shares, constituting 0.17% of the Shares and (iv) Marcato International Master Fund, Ltd. may be deemed to be the beneficial owner of 4,924,842 Shares, constituting 7.14% of the Shares, each based upon a total of 68,990,927 Shares outstanding as of October 31, 2014 (based on the Issuers Quarterly Report on Form 10-Q, filed with the SEC on November 10, 2014).
CUSIP No. 835898107
Marcato, L.P. may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) 1,529,210 Shares. Marcato II, L.P. may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) 117,754 Shares. Marcato International Master Fund, Ltd. may be deemed to have the shared power to vote or direct vote of (and the shared power to dispose or direct the disposition of) 4,924,842 Shares. Marcato, as the investment manager of Marcato, L.P., Marcato II, L.P. and Marcato International Master Fund, Ltd., may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Marcato Shares. By virtue of Mr. McGuires position as managing partner of Marcato, Mr. McGuire may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Marcato Shares and, therefore, Mr. McGuire may be deemed to be the beneficial owner of the Marcato Shares.
The transactions by the Reporting Persons in the securities of the Issuer during the past sixty days are set forth in Exhibit 2.
The limited partners of (or investors in) each of Marcato, L.P., Marcato II, L.P., and Marcato International Master Fund, Ltd., or their respective subsidiaries or affiliated entities, for which Marcato or its affiliates acts as general partner and/or investment manager have the right to participate in the receipt of dividends from, or proceeds from the sale of, the Shares held for the accounts of their respective funds in accordance with their respective limited partnership interests (or investment percentages) in their respective funds.
Item 6. | Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. |
The responses to Items 3, 4 and 5 of the Schedule 13D are incorporated herein by reference.
The Reporting Persons purchased American-style call options referencing 1,500,000 Shares with a strike price of $39 which are exercisable through April 17, 2015. The Reporting Persons sold American-style call options referencing 1,500,000 Shares with a strike price of $45 which are exercisable through April 17, 2015. None of the options gives the Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Issuer or requires the counterparties thereto to acquire, hold, vote or dispose of any securities of the Issuer prior to exercise.
The Reporting Persons sold American-style put options referencing 1,500,000 Shares with a strike price of $33 which are exercisable through April 17, 2015. None of the options gives the Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Issuer or requires the counterparties thereto to acquire, hold, vote or dispose of any securities of the Issuer prior to exercise.
Except for the arrangements described in this Schedule 13D, to the best knowledge of the Reporting Persons, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any other person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities, finders fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies.
Item 7. | Material to be Filed as Exhibits. |
Exhibit 2 Transactions in the Shares effected in the past sixty days.
Exhibit 5 Letter from Marcato Capital Management LP to Domenico De Sole, Lead Independent Director of Sothebys.
CUSIP No. 835898107
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.
Date: February 20, 2015 | MARCATO CAPITAL MANAGEMENT LP | |||||
By: | Marcato Holdings LLC | |||||
By: | /s/ Richard T. McGuire III | |||||
Richard T. McGuire III | ||||||
Authorized Person | ||||||
Date: February 20, 2015 | RICHARD T. MCGUIRE III | |||||
By: | /s/ Richard T. McGuire III | |||||
Date: February 20, 2015 | MARCATO, L.P. | |||||
By: | MCM General Partner LLC, its General Partner | |||||
By: | /s/ Richard T. McGuire III | |||||
Richard T. McGuire III | ||||||
Authorized Person | ||||||
Date: February 20, 2015 | MARCATO II, L.P. | |||||
By: | MCM General Partner LLC, its General Partner | |||||
By: | /s/ Richard T. McGuire III | |||||
Richard T. McGuire III | ||||||
Authorized Person | ||||||
Date: February 20, 2015 | MARCATO INTERNATIONAL MASTER FUND, LTD. | |||||
By: | /s/ Richard T. McGuire III | |||||
Richard T. McGuire III | ||||||
Director |
EXHIBIT 2
TRANSACTIONS
The following table sets forth all transactions with respect to Shares or options to purchase or sell Shares effected in the last sixty days by the Reporting Persons on behalf of the Reporting Persons, inclusive of any transactions effected through 4:00 p.m., New York City time, on February 19, 2015. All such transactions were purchases or sales of Shares or purchases or sales of options to purchase or sell Shares effected in the open market, and the table includes commissions paid in per share prices.
Fund |
Trade Date | Buy/Sell(1) | Shares | Unit Cost | Security | |||||||||||||
Marcato II, L.P. |
01/02/2015 | Buy | * | 2,402 | 43.18 | Common Stock | ||||||||||||
Marcato II, L.P. |
01/02/2015 | Buy | * | 668 | 5.75 | OTC Call Option (2) | ||||||||||||
Marcato II, L.P. |
01/02/2015 | Sell | * | (668 | ) | 2.23 | OTC Call Option (2) | |||||||||||
Marcato II, L.P. |
01/02/2015 | Sell | * | (668 | ) | 0.45 | OTC Put Option (3) | |||||||||||
Marcato, L.P. |
01/02/2015 | Sell | * | (18,629 | ) | 43.18 | Common Stock | |||||||||||
Marcato, L.P. |
01/02/2015 | Sell | * | (5,188 | ) | 5.75 | OTC Call Option (2) | |||||||||||
Marcato, L.P. |
01/02/2015 | Buy | * | 5,188 | 2.23 | OTC Call Option (2) | ||||||||||||
Marcato, L.P. |
01/02/2015 | Buy | * | 5,188 | 0.45 | OTC Put Option (3) | ||||||||||||
Marcato International Master Fund, Ltd. |
01/02/2015 | Buy | * | 16,227 | 43.18 | Common Stock | ||||||||||||
Marcato International Master Fund, Ltd. |
01/02/2015 | Buy | * | 4,520 | 5.75 | OTC Call Option (2) | ||||||||||||
Marcato International Master Fund, Ltd. |
01/02/2015 | Sell | * | (4,520 | ) | 2.23 | OTC Call Option (2) | |||||||||||
Marcato International Master Fund, Ltd. |
01/02/2015 | Sell | * | (4,520 | ) | 0.45 | OTC Put Option (3) |
(1) | All transactions noted by an * are rebalancing transactions. |
(2) | Represents shares underlying American-style call options purchased or sold, as applicable, in the over the counter market, all of which are exercisable through April 17, 2015. |
(3) | Represents shares underlying American-style put options purchased or sold, as applicable, in the over the counter market, all of which are exercisable through April 17, 2015. |
Exhibit 5
February 20, 2015
Domenico De Sole
Lead Independent Director
Sothebys
1334 York Avenue
New York, New York 10021
Domenico,
I am writing in response to Sothebys announcement on February 13th that there will be no return of capital to shareholders at this time.1
In the 18 months since Marcatos initial investment in Sothebys, we have outlined numerous opportunities both publicly and privately for Sothebys to use its capital more intelligently to create shareholder value. Despite our dialogue with you and other members of the board, a substantial portion of Sothebys invested capital continues to earn a poor return or worse yet, earns no return at all. 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 Marcatos investment, we have enjoyed neither. 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. We submit that any new CEOs first order of business may need to include the recruitment of a new CFO who will serve the interests of shareholders rather than defend misguided policies of the past.
By way of background, sell-side analysts covering Sothebys value the company by applying a P/E multiple to their estimate of earnings per share. This methodology produces a result that ignores any part of Sothebys business that has value but does not contribute to its earnings; the most obvious example of which is the companys unusually large cash balance, but the same can be said for art and jewelry inventory, excess equity in the loan portfolio, and real estate assets. None of this significant value is being accounted for in Sothebys current market value.
Today, we present a specific and straightforward roadmap that we believe can immediately release $12.33 per share (28% of current market value) without materially affecting the companys continued earnings power. With this increased flexibility, we recommend the immediate repurchase of $500 million of Sothebys shares.
1 | Exhibit to Sothebys Form 8-K filed February 13, 2015 |
How did we get here?
A simple Google search for Delaware Chancery Court Memorandum OpinionSothebys produces a court document that offers rare insight into the rationale behind Sothebys current capital allocation strategy. The email excerpts in the court opinion expose that capital allocation decisions in the past had not been governed by thoughtful consideration for liquidity needs, return thresholds, and costs of capital but rather by tactical considerations to forestall a long-overdue proxy contest.
Among numerous other examples, the passage below between CEO Bill Ruprecht and Robert Taubman, a member of the Finance Committee, was particularly disappointing:
We are going to be the target of a proxy fight with activist shareholders. The motivation for that fight is only peripherally about returning capital. It is about being on Sothebys Board. Mick McGuire needs that as validation, and Loeb wants that for ego
My review of the situation however is this: if we make a gesture, that we can afford, of a couple of hundred million returned quickly to shareholders, we gain enormous tactical leverage in the process of persuading the 85% of shareholders who were not activists, that we are responsible stewards for their investment
So this is about power, and political gamesmanship with shareholders, not about capital structure [emphasis added]
If you do a modest buy back, and still feel like you are going to lose a proxy contest, then you would offer activists one or two seats and still be in control. 2
At the time of this correspondence, Sothebys current CFO, Patrick McClymont, was employed by Goldman Sachs and serving as managements financial advisor. In an email exchange with Bill Ruprecht, Patrick McClymont agreed with Bills argument that the decision to make a prudent distribution now allows us the greatest control over board composition and collegiality going forward. To bunker in ensures board disruption next spring. This isnt and never was about capital markets [for McGuire and Loeb]. Its about getting into a leadership position on Sothebys board. [emphasis added]
As you recall, this reasoning proved to be wrong as I was offered a board seat and I declined because I would only serve on the condition that Sothebys commit to certain capital allocation targets; a condition the company resisted.
Against this backdrop, should shareholders be surprised that a CFO who was originally hired as the CEOs activist defense banker would be reluctant to update a capital allocation strategy that was conceived with ulterior motives? Should shareholders be surprised that promises to return capital have gone unfulfilled after the ill-conceived plan failed to accomplish its goal of preventing a proxy challenge? Should shareholders be surprised that a board and management with very little of their own money invested in Sothebys stock are unconcerned with the opportunity cost of lazy capital allocation policies?
2 | Source: http://courts.delaware.gov/opinions/download.aspx?ID=205180 |
2
What should we do now?
The exercise is a simple one:
1) | Answer the question: How much capital flexibility does the company require in order to pursue its business strategy and be confident that it can withstand an unexpected downturn in its business? |
2) | Calculate sources of capital that Sothebys has at its disposal. |
3) | If #2 is greater than #1, the company is overcapitalized. The cost of this overcapitalization can be measured by comparing the companys cost of capital to the return being earned on these assets. |
Management has provided a framework to #1 in a presentation dated January 29, 2014 where Sothebys detailed the results of its capital allocation and financial policy review3(this presentation mysteriously can no longer be found on Sothebys website).
The answer to #1 is $495 million which is broken down as follows:
| $300 million in stand-by liquidity in case the company experiences a worst case scenario of having to fund auction guarantees. The company defined worst case scenario as 50% of outstanding guarantees (net of any purchase commitments) and an overall limit of $600 million in guarantees (net). (In truth, the January presentation detailed a liquidity reserve of $150 million against a net guarantee limit of $300 million, but management very quickly blew through its own self-imposed limit just a few months later and revised their max guarantee target to $600 million, but the lack of discipline around targets is the topic of a different conversation.) |
| $100 million of available capital to fund deals that offer certain buyers extended payment terms on purchases. This represents loans that are outside the activities of Sothebys Financials Services (SFS); query as to why extended payment terms are not funded out of SFS? |
| $90 million as a cushion to working capital in the scenario where a sudden and severe downturn reduces cash flow faster than the company can reset its cost base. |
| $5 million in working capital for SFS. |
To reiterate, in January 2014, as part of an effort to undermine a proxy contest through a gesture we can afford, managements framework implies $495 million of worst case scenario liquidity requirements. It is difficult to imagine why management would have any reason to underestimate this number, but quite easy to imagine why they might have wanted to overestimate the number for purposes of justifying a smaller gesture.
3 | Exhibit to Sothebys Form 8-K filed January 29, 2014 |
3
Calculating the sources of capital at Sothebys disposal is also not difficult. However, we do believe that there are steps that Sothebys can and should take to increase the total liquidity available to the company. We detail this below:
Current Ready Liquidity:
| $484 million in Cash at 9/30 (defined as cash on hand, plus $450 million receivable from buyers less $386 million due to consignors) |
| $192+ million of estimated Free Cash Flow generated in Q4 20144 |
| $300 million revolving credit facility that is currently undrawn |
Subtotal: $976 million
We continue to recommend that the company take the following easy steps to create additional sources of liquidity:
| Appraise London real estate assets and use as a source of funding through either: 1) mortgage financing; or 2) adding appraised real estate value to the collateral basket of the credit facility. $162.5 million. Using estimate of $250 million appraisal value and 65% advance rate. |
| Employ conservative leverage against auction segment through fixed-rate term financing. Management recommends 3.5x-4.0x Adjusted Debt / through the cycle EBITDA, inclusive of mortgage related debt, and has been unwilling to disclose their definition of through the cycle EBITDA. We would advocate for 2x Debt / through the cycle EBITDA, but we exclude mortgage debt from this calculation. We compute the trailing 7-year average auction segment EBITDA to be $206 million implying incremental borrowing capacity of $112 million. |
| Increase SFS loan-to-value to stated target level of 85% of outstanding loan balances. $54 million. |
| Appraise New York real estate and contribute residual equity value of New York property to the collateral basket of the credit facility. $41 million. Using estimate of $400 million appraisal value, 65% advance rate of total property value less $219 million mortgage loan. The company has the ability to pre-pay the mortgage on July 1 and this is an opportune time to improve the terms of the mortgage. |
Subtotal: $370 million
#2: Total sources of capital: $1,346 million
#2 minus #1 = $851 million of excess capital!
Calculating the Cost:
$851 million of excess capital represents $12.33 per share, or 28% of the current stock price. We believe the company can immediately release this excess capital without materially changing the earnings power of the business.
4 | Assumes Q2 2014 adjusted cash flow from operations (excluding changes in accounts receivable, due to consignors, and unusual inventory investment) less capital expenditures |
4
This degree of financial mismanagement is unacceptable particularly given the persistence of excess capital over the tenure of Marcatos investment. The board and management must take the necessary steps to cure this dynamic. We recommend the immediate repurchase of $500 million of Sothebys shares. This amount represents the current cash and revolver capacity less the entire reserve for worst case scenario liquidity requirements. Share repurchases are much more tax efficient than a special dividend and we believe that Sothebys shares are a compelling long-term investment. The remaining excess capital can be accessed in short order and redeployed into activities that clear the companys 15% ROIC hurdle or can be returned to shareholders through additional share repurchases. Future free cash flow generated by the business will also be available to fund growth investments.
We expect that with this analysis, the Finance Committee of the board will be equipped to fulfill its duty as fiduciaries to shareholders. While these numbers appear large, their magnitude only serves to highlight the dereliction of responsibility of Sothebys board and management. As one of Sothebys largest shareholders, we also look forward to a thorough discussion with its new CEO regarding the importance of intelligent capital allocation in creating value for shareholders.
Sincerely,
Mick McGuire
cc:
John Angelo Finance Committee
Jessica Bibliowicz
Kevin Conroy
The Duke of Devonshire
Daniel Loeb
Daniel Meyer
Olivier Reza Finance Committee
Marsha Simms
Robert Taubman Finance Committee
Diana Taylor Finance Committee
Dennis Weibling Finance Committee, Chairman
Harry Wilson Finance Committee
5