Mick McGuire Long Corepoint Lodging & Extended Stay America: Sohn San Francisco 2018

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Mick McGuire of Marcato Capital Management who pitched 2 longs: Corepoint Lodging (CPLG) and Extended Stay America (STAY).


Mick McGuire's Sohn San Francisco Presentation: Two Longs

•    Corepoint Lodging (CPLG) – lodging REIT spun off from La Quinta
•    Spun off from La Quinta recently so a new company in equity markets
•    315 properties REIT with all La Quinta branded properties and operated by Wyndham
•    Some classic dynamics of spin-off at play (Less analyst coverage, noisy financials, atypical shareholder base due to spin)
•    Earnings were temporarily depressed and should increase as 1) hotels impacted by hurricanes in Texas and Florida will come back online and contribute to earnings; 2) renovations are completed
•    Trading at a discount to peers at 8.3x EV/EBITDA vs median of 10.6x
•    Other sources of earnings upside are increased oil and gas activity – have more exposure to oil and gas markets
•    Trading at a discount based on hard asset value
•    Substantial opportunity to improve hotel level profitability
•    If margin improvement doesn’t happen, business likely to be sold (Taxable spin purposefully preserved ability to sell immediately)
•    55% upside based on current price, using 11x multiple and 2019 EBITDA of $232m


•    Extended Stay America (STAY) – hotel owner/operator with 599 properties and 27 franchisees
•    La Quinta part 2 but at the beginning of the story
•    Largest single brand hotel owner and operator in North America
•    Longer length of stay, less labor and higher margins versus typical lodging operator
•    Company knows current structure is sub-optimal and seems motivated to do something, which could unlock value
•    Highest margins relative to peers, strong cashflow profile, positive industry fundamentals, discounted valuation
•    Re-franchising less profitable units
•    Building new hotels with cash flow
•    Last of its kind to separate its hard real estate assets from its brand company
•    Capital deployment likely to drive shareholder value: stable cash flow from retained hotels, refranchising less profitable hotels, goes into: repurchasing shares, new hotels, growing franchise business which is minimal cost and high returns
•    Attractive valuation: Trading at discount to peers. 8x EBITDA versus peers at an average of 10.7x
•    Argues co belongs in a larger portfolio
•    134% upside to $38.12 target price based on 2022E Maintenance FCF/Share of $2.29 and 15x multiple


Be sure to check out the rest of the Sohn San Francisco 2018 presentations.

Marcato Capital's Presentation on Buffalo Wild Wings

Activist investor Mick McGuire's Marcato Capital Management has filed an amended 13D with the SEC regarding its position in Buffalo Wild Wings (BWLD).  Per the filing, Marcato has sent a letter indicating they think the board and management at the company needs to be replaced (letter here).

Marcato has also created a separate slideshow presentation and has outlined a multi-step plan to help turnaround the business: 

1) Refocus the company on its core brand and value proposition,

2) Sell stores to new and existing franchisees (targeting 90% mix of franchised stores by 2020),

3) Create a capital deployment strategy based on returns and profitability, 

4) And finally, realign management incentives to focus on returns on capital and per-share value instead of top-line growth or profit dollars.

Embedded below is Marcato's presentation on Buffalo Wild Wings:



You can download a .pdf copy here.

You can follow Marcato's presentations at the website www.winningatwildwings.com.

Marcato Capital Sells Some Sotheby's Shares To Company

Mick McGuire's activist firm Marcato Capital Management has filed an amended 13D on its position on Sotheby's (BID).  Per the filing, Marcato now owns 4.9% of BID with 2.62 million shares.

This is a change from the 5.27 million shares they reported on their 13F filing at the end of the second quarter.

The filing notes that Marcato entered into a share repurchase agreement with Sotheby's where BID agreed to purchase 2.05 million shares of BID from Marcato at $36 per share on October 4th.

For more on this fund, we've highlighted other recent portfolio activity from Marcato.

Per Google Finance, Sotheby's is "a global art business company. The Company operates in two segments: Agency and Finance. The Agency segment earns commissions by matching buyers and sellers of authenticated fine art, decorative art, jewelry, wine and collectibles (collectively, art or works of art or artwork or property) through the auction or private sale process. Agency segment activities also include the sale of artworks that are principally acquired incidental to the auction process and the activities of RM Sotheby's. The Finance segment earns interest income through art-related financing activities by making loans that are secured by works of art. Its activities include Sotheby's retail wine operations, Acquavella Modern Art, an equity investee, and sales of the remaining inventory of Noortman Master Paintings, an art dealer that was owned and operated by Sotheby's are reported within all other segment."

Marcato Capital Exercises Call Options on Buffalo Wild Wings

Mick McGuire's activist investment firm Marcato Capital Management has filed an amended 13D with the SEC regarding its stake in Buffalo Wild Wings (BWLD).  Per the filing, Marcato owns 5.2% of the company with 950,000 shares.

Their overall economic stake remains unchanged from when they originally filed their 13D back in August.  But the filing indicates they exercised their call options on September 12th at $114 per share.

Marcato has also put together a slide deck on its thesis on BWLD and you can view it here.

Per Google Finance, Buffalo Wild Wings is "an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises."

Marcato Capital Takes Terex & Buffalo Wild Wings Stakes

Mick McGuire's activist firm Marcato Capital Management has recently taken stakes in two companies.


Marcato Discloses Terex (TEX) Stake

First, Marcato just filed a 13D with the SEC regarding shares of Terex (TEX).  They now own 5.1% of the company.  CNBC reported that the firm will urge a spinoff and restructuring but support the CEO.

Per Google Finance, Terex is "a lifting and material handling solutions company. The Company is focused on providing its operations and delivering solutions for a range of commercial applications, including the construction, infrastructure, mining, manufacturing, transportation, energy and utility industries. It operates through five segments: Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions (MHPS), and Materials Processing (MP). The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. The Construction segment designs, manufactures and markets over two primary categories of construction equipment and their related components, and replacement parts. The Cranes segment designs, manufactures, services, refurbishes and markets mobile cranes. MHPS designs, manufactures, services and markets industrial cranes. The MP segment designs, manufactures and markets materials processing equipment."


McGuire Starts Buffalo Wild Wings (BWLD) Position

Second, McGuire has also filed a 13D with the SEC regarding shares of Buffalo Wild Wings (BWLD).  Per the filing, Marcato now owns 5.1% of the company with 950,000 shares.  The stake is comprised of various common stock holdings as well as the purchase/sale of various options which you can view here at the very bottom.

This is a newly disclosed position.  They were active in shares and options as early as June 20th and as late as July 22nd.

The filing notes they've already had discussions with directors and will continue to have discussions.

Per Google Finance, Buffalo Wild Wings is "an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises."

Marcato Capital Exercises Calls on LPL Financial; Owns 6.4% of the Company

Mick McGuire's activist firm Marcato Capital Management filed an amended 13D with the SEC recently regarding its position in LPL Financial (LPLA).  Per the filing, Marcato now owns 6.4% of the company with over 6 million shares.

This is up from the 550,000 shares Marcato owned at the end of the third quarter and is mainly due to Marcato exercising call options on November 20th at a unit cost of 20 each.

Per Google Finance, LPL Financial is "an independent broker-dealer, a custodian for registered investment advisors (RIAs) and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at around 700 financial institutions, enabling them to provide their retail investors with objective financial advice. It also supports approximately 4,400 financial advisors who are affiliated and licensed with insurance companies through customized clearing services, advisory platforms, and technology solutions. It provides its advisors with the front-office, middle-office, and back-office support. The Company provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its subsidiaries include LPL Financial LLC, The Private Trust Company, N.A., Independent Advisers Group Corporation and LPL Insurance Associates, Inc."

Mick McGuire's Sohn Canada Presentation: Long Sotheby's & Virtus Investment Partners

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Mick McGuire from Marcato Capital.  He presented two long ideas: Sotheby's (BID) and Virtus Investment Partners (VRTS).

Mick McGuire's Sohn Canada Presentation

-    LONG Sotheby’s (BID) 
-    Agent in the art collection industry primarily hosting auctions and private sales
-    Trading at 8x EBITDA, 31% EBITDA margin, 47% share of a $12.9Bn market
-    Business is split into two divisions: agency and financial services
-    Agency performs the auction and private sale process

•     Not capital intensive, provides consistent return with a fairly amount of inherent leverage as larger purchases provide additional commissions. 

-    Financial services business is where they lend on the purchase of art

•     Interest at 7%, < 50% LTV, guaranteed by collector 
•     Funds this business with a low cost $1Bn revolver 
•     Run rate $50MM 

-    Frothy art market may be a negative catalyst but Mick sees growth in the private sales market as this has little penetration to date from Sotheby’s.
-    Opportunity to grow financing division to add additional net interest income
-    Reasons for undervaluation

•     $450MM excess cash on books 
•     $250MM in inventory a.k.a. art and jewelry, sell side appoints no value to this but there is definitely value in these items 
•     Real estate owned by the company, approximated value of $175MM for the NYC location and $250MM for the London location 
•     Additional value in the loan book 
•     Currently $774MM in loans, $594MM in debt against these loans, currently 77% LTV with a target of 85% providing additional interest margin. 

-    Catalysts

•     Refinancing of the NYC location should close in Q3 
•     $250MM share repurchase  
•     Approximately $1.1Bn in non-operating assets a.k.a. redundant assets that could be sold which is 40% of the market cap 
•     A new CEO was brought in and personally invested $2MM and has a compensation package oriented to long term stock price appreciation. 
•     With the redundant assets removed, the stock is trading at 4.1x EBITDA 
•     Mick sees the position at ~$50/share or 60% upside from today’s prices.      

-    LONG Virtus Investment Partners Inc (VRTS) 
-    Asset management with a distribution platform that primarily uses sub advisors to manage funds.
-    The balance sheet is misunderstood providing upside for the stock if value can be released.
-    It has a market cap of approximately $1Bn and an enterprise value of $480MM
-    Trading at 6x earnings
-    Has a 15% AUM CAGR (which is evenly distributed between net inflows and performance)
-    VRTS seeds most of its own capital to begin with, due to accounting these are seen as cash outflows which skews the cash flows from operations
-    This is called their accelerate seed program and it is funded by a $100MM issuance and FCF -    They have $115MM in FCF when adjusted for this
-    EV/LTM EBITDA is 3.7x
-    Have a reputational concern due to a fund “AlphaSector Fund” using backtested returns for marketing. Outflows from this fund have skewed the net inflows/outflows figure to the worse causing the trend to look poorly. When adjusted the AUM has had consistent inflows. Once the AlphaSector is behind them in Q1 2016, the figures will market properly.
-    Industry EV/EBITDA is closer to 8x
-    Cash and investments are approximately 50% of the net assets, most sell side analysts are putting discounts on this figure for unjustified reasons.
-    Currently trading at $98, sees the stock at $224/share in 2-3 years through the combination of value activation activities such as returning cash to shareholders.


Be sure to check out the rest of the presentations from the Sohn Canada Conference.

Marcato Capital Starts LPL Financial Stake

Mick McGuire's activist hedge fund Marcato Capital has filed a 13D with the SEC regarding shares of LPL Financial (LPLA).  Per the filing, Marcato now owns 6.3% of the company with over 6 million shares.

This is a newly disclosed position for the firm as they did not own any shares at the end of the second quarter.  The filing was made due to activity on September 21st.

McGuire's firm was out buying shares in late August and throughout September at prices between $39.10 and $42.94.  Shares currently trade around $42.50.

The 13D contains the typical activist boilerplate that they may engage management, etc.

We've covered other previous portfolio activity from Marcato here.

Per Google Finance, LPL Financial is "an independent broker-dealer, a custodian for registered investment advisors (RIAs) and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at around 700 financial institutions, enabling them to provide their retail investors with objective financial advice. It also supports approximately 4,400 financial advisors who are affiliated and licensed with insurance companies through customized clearing services, advisory platforms, and technology solutions. It provides its advisors with the front-office, middle-office, and back-office support. The Company provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its subsidiaries include LPL Financial LLC, The Private Trust Company, N.A., Independent Advisers Group Corporation and LPL Insurance Associates, Inc."

Marcato Capital Increases Avis Budget Stake

Mick McGuire's activist investment firm Marcato Capital Management has filed a 13G regarding shares of Avis Budget (CAR).  Per the filing, Marcato now owns 5.4% of the company with over 5.71 million shares.

This is up from the 3.34 million shares that Marcato owned at the end of the first quarter.  The filing was made due to activity on July 9th.  CAR traded at $65 to start the year, but has since slowly declined down to current levels of around $42 and Marcato has used the weakness to boost its exposure to the name.

The thesis here has largely been based on the industry consolidating down from a lot of companies into a few major ones, creating an oligopoly.  The thought is that they could act rationally together, raise prices, and profit.  Thus far, that road has been a little bumpier than expected for bulls.

While Marcato primarily takes activist stakes in companies, this looks to be a passive investment, at least for now.  Prior to founding Marcato, McGuire worked at Bill Ackman's Pershing Square.

We've highlighted previous Marcato portfolio activity here.

Per Google Finance, Avis Budget is "a provider of vehicle rental and car sharing services. The Company operates three brands, which include Avis, Budget and Zipcar. Avis is a rental car supplier and Budget is a rental vehicle supplier. The Company also own Payless, a car rental brand and Apex, which is a car rental brand in New Zealand and Australia. The Company operates in three segments: North America, International and Truck Rental. North America segment provides car rentals in the United States and vehicle rentals in Canada, as well as ancillary products and services. International segment provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand. Truck Rental segment provides truck rentals and ancillary products and services to consumers and commercial users in the United States.."

Marcato Capital Exits Life Time Fitness

Mick McGuire's hedge fund firm, Marcato Capital Management, has filed an amended 13D with the SEC regarding its stake in Life Time Fitness (LTM).  Per the filing, Marcato no longer holds shares in the company (they previously owned over 3.11 million shares).

The filing was made due to activity on March 16th.  Life Time Fitness recently agreed to a buyout from Leonard Green and TPG in a $4 billion deal.  As such, LTM stock has traded as a risk arbitrage name.  If we were to speculate, Marcato probably saw more attractive uses for their capital, rather than waiting around to capture the deal spread.

For more from this hedge fund, we also recently posted Marcato's presentation on Bank of New York Mellon.

Per Google Finance, Life Time Fitness is "engaged in designing, building, and operating multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment, principally in residential locations of major metropolitan areas in the United States and Canada."

Marcato Capital's Presentation on Bank of New York Mellon

Mick McGuire's hedge fund firm, Marcato Capital Management, has released a letter and presentation to shareholders of Bank of New York Mellon (BK) outlining their thoughts on the company and why they feel a leadership change is in order.

Embedded below is Marcato's letter to BK shareholders:



You can download a .pdf copy of the letter here.


And also embedded below is Marcato's presentation on Bank of New York Mellon:



You can download a .pdf copy of the presentation here.


McGuire is known for taking an activist approach in his investments and this case is no different.  Prior to founding Marcato, he worked at Bill Ackman's Pershing Square, another well known activist investment firm.

Bill Ackman's Fireside Chat at Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is a fireside chat that Mick McGuire of Marcato Capital had with Bill Ackman of Pershing Square.  McGuire worked at Pershing before launching his own fund.


Bill Ackman's Fireside Chat at Invest For Kids Chicago

•    Pershing Square up over 30% this year. Benefiting from a Jim Bean sale, Platform Specialty, Air Products, Burger King, Herbalife continue to play out, Pershing Square Holdings and other newsworthy items.


•    Allergan (AGN) – revised their disclosure to include they are in active merger discussions with what Bill thinks is Actavis.
•    Ackman believes VRX can offer the most value versus Actavis. VRX has demonstrated track record for material acquisitions. More comfort with VRX vs. Acatvis. Actavis could be the white knight perhaps.
•    Either party will have to offer stock in the deal. Allergan has put themselves up for sale.
•    Thinks the best thing is that AGN asks for bids from VRX/Actavis and take the best/highest bid. December meeting is relevant. Co did everything they can to stop shareholders from voicing their views.
•    Incentive to negotiate before directors get thrown off.
•    AGN – essentially a management change with many synergies if VRX acquires.



•    Fannie and Freddie (FNMA / FMCC) now. They were short when Mick was at Pershing. Increased exposure in light of the case.
•    Fannie/Freddie two of the best businesses in the world.
•    Very safe business. Allows banks to sell/offload 30 yr mortgage which isn’t a good instrument for banks yet is very helpful to homeowners.
•    They di-worisified their business by buying fixed income securities (subprime, etc.). That is why Pershing was originally short before the US government recapitalized the company.
•    Became profitable in late FY11, when housing markets recovered. Over-reserved during the crisis. Heading back to their core mission/business. Bought them on that basis.
•    USA government took 100% of future profits of both entities, excuse was that they could never pay the government back. That was false, on their way to pay back the government.
•    Largest taking of a private asset by the government. Thankfully, it’s illegal. 5th amendment.
•    Judge Lamberth decision wasn’t about the takings claim which matters the most.
•    His best argument (for a hostile judge) is that shareholders can still trade the stock and make a profit. This could ultimately go to the Supreme Court.
•    Maybe Republicans want to get this solved and recapitalized. Very interesting risk reward, stock went from a dollar on the lost. Think it’s worth $40 - $50.
•    Reminds him of GGP when it was bankrupt.
•    “Always bet on America”
•    How do you size an opportunity on Fannie/Freddie? AGN hard to lose money but make 2x, make it bigger. Fannie could lose a lot but make a ton, hence for Pershing its 2% position.


•    Canadian Pacific (CP) next topic. Started buying September 2011. June 2012 gained control. One of the best industrial turnarounds.
•    Canadian Pacific approached CSX about a potential transaction, was rebuffed.
 •    Investment business – learned a lot over time. Started out buying cheap companies, now really emphasizes quality of business. Didn’t emphasize management at first, but Hunter at Canadian Pacific really shows the power of a strong management team.


•    Air Products (APD): Thinks the company could improve with the new CEO.


•    Howard Hughes (HHC) – brought on a strong management team that developed the assets and created a lot of value.


•    Platform Specialty Products (PAH) was a cash shell, great example of management. Raised $900MM, Pershing brought $300MM. Martin the CEO made an acquisition, the stock doubled. Bought a business in an auction. Starting to consolidate the specialty chemical industry.


•    On Executive Compensation: When you are going into these situations how do you think about the ideal CEO compensation structure? Bill’s response: S&P 500 co usually pays $10MM - $12MM, mix of cash options, restricted stock. Doesn’t align mgmt as they continually want lower priced options, especially if an acquisition occurs (more upside to them ~ not exact wording)
•    Sold a warrant of 4% of the outstanding shares with sale restriction at FMV to the CEO (did this for Howard Hughes).  Warrant went from $15MM to $250MM, 6 yr holding period, alignment and good upside for the CEO.
•    With Hunter who was 67, his incentives was also reputational. Gave him options upfront.


•    Thinking of Philanthropy: Always viewed as business as a way to make money in order to do good.  A lot of good is created by capitalism.
•    One philanthropy investment in Mexico giving iPads to store owners to run their stores better. Pepsi/ Nestle tracking data and the small store owners become more profitable through better management.
•    No cure – medical device to solve certain cancers. Prefers to invest in for profit to solve good as people are economically incentivized.
•    For things that there is no for profit solution, will do big grants (cultural, etc.). Never invest in a not for profit if there is a for profit competitor/solution.

For more from Ackman, he recently talked at the Great Investors' Best Ideas Dallas conference as well.


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Marcato Capital Sends Letter to Life Time Fitness, Proposes Separation of Real Estate Assets

Mick McGuire's activist hedge fund firm Marcato Capital recently filed an amended 13D with the SEC regarding their position in Life Time Fitness (LTM).  Per the filing, Marcato continues to own 8% of the company with approximately 3.1 million shares.

Marcato's filing includes a letter to Life Time's Chairman commending the company for exploring a potential REIT conversion.

McGuire writes, "In our opinion, many investors and analysts do not fully appreciate the transformational nature of the Company's announcement.  Based on Marcato's analysis, at the mid-point of our valuation range, we believe the shares of LTM could reach $70 per share upon separation of the Company's real estate assets."

We had previously highlighted how Marcato increased its Life Time Fitness stake this summer and now they're taking things a step further.

Embedded below is the full letter to the board as well as Marcato's presentation on valuation:

Marcato Capital Increases Life Time Fitness Stake

Mick McGuire's hedge fund firm Marcato Capital today filed an amended 13D with the SEC regarding their stake in Life Time Fitness (LTM).  Per the filing, Marcato has indicated they own 7.6% of the company now with over 3.11 million shares.  This is up from the 2.9 million shares they previously disclosed.

The filing notes that "On June 17th (Marcato) received notification granting their request for early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.  Following such notification, (Marcato) exercised options that they owned and purchased additional shares."

We highlighted Marcato's original 13D filing on LTM here.

Per Google Finance, Life Time Fitness "operates multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment."

Marcato Capital Files 13D on Life Time Fitness

Mick McGuire's hedge fund firm Marcato Capital Management has filed a 13D with the SEC on Life Time Fitness (LTM).  This is a brand new position for the hedge fund and they now own 7.2% of the company with over 2.9 million shares.

The filing was made due to activity on May 12th.  The activist investor included the typical boilerplate in the 13D and didn't outline any specific plans at this time.

Marcato's position is comprised of various stock options as they have calls referencing an aggregate of over 1.7 million shares with an exercise price of $30 and expire in July 2014.  They also sold put options for the same underlying amount of shares with the same strike and expiration date.  They've also entered into swaps.

Their trading activity log shows they were buying stock at the end of March around $47.80, the end of April around $47.74 and in the middle of may around $48.45.

Per Google Finance, Life Time Fitness is "operates multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment."

For more on this hedge fund, check out Marcato's presentation on Sotheby's & Dillards.

Marcato Capital's Presentation on Sotheby's & Dillard's

Mick McGuire of hedge fund Marcato Capital Management recently made a presentation on both Sotheby's (BID) and Dillard's (DDS) at the Active Passive Investor Summit.

They are activist investors in Sotheby's and their thesis is summed up by: significant levels of unproductive capital, inappropriate mix of debt & equity, and desire for more shareholder friendly capital allocation.  Daniel Loeb's Third Point is also a BID activist here.

Marcato also presented a passive investment example in Dillard's where activists got involved in the stock a few years ago, the stock continued to drop and the activists eventually bailed on their position. 

Dillard's went on to turn itself around and Marcato thinks it's an attractive passive investment opportunity today as it trades at a 12% free cash flow yield and is using FCF to buy back shares.  The hedge fund thinks DDS could head as high as $155 per share (currently trades around $95).

Embedded below is Marcato's slideshow presentation:




You can view other activity from Marcato here.

Marcato Capital Management Adds to Lear Position

Mick McGuire's activist hedge fund Marcato Capital Management has filed an amended 13D with the SEC regarding their stake in Lear (LEA).

Per the filing, Marcato now owns 7.9% of the company with over 6.4 million shares.  This means they've boosted their notional exposure by 750,000 shares since the end of the third quarter.

The fine print indicates they own call options representing 7.6 million shares at prices ranging from $40 to $90 per share and expiration dates ranging from June 2014 to August 2014.  They've also sold puts representing 7.6 million shares with exercise prices ranging from $40 to $65 and the same expiration dates.

The filing was required due to activity on January 23rd.  You can view the exact details of their recent trades here.

We previously highlighted how Marcato disclosed a Lear stake just slightly over a year ago.

Per Google Finance, Lear is "a tier 1 supplier to the global automotive industry. The Company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components. The Company has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests and seat foam." 

Marcato Capital's Presentation on Sotheby's: Excellence in Investing San Francisco

Mick McGuire of activist hedge fund Marcato Capital Management pitched Sotheby's (BID) at the Excellence in Investing San Francisco conference yesterday.  We'll be posting up notes from the event soon, but in the mean time here's Marcato's take on BID.

Marcato's Presentation on Sotheby's (BID)

McGuire feels there's an opportunity for BID to return capital to shareholders and suggests that a $1.3 billion accelerated repurchase (around 38% of market cap) could boost shares to $68, up 56% from July 30th close. He's also looking for various operational improvements that can contribute to the upside.

Marcato isn't alone on their bullish and activist stance on BID as Dan Loeb's Third Point sent a letter to the BID board recently.

Embedded below is McGuire's presentation from the Excellence in Investing San Francisco conference:



Check back soon as we'll be posting up notes from Excellence in Investing SF shortly!

Mick McGuire's Presentation on United Rentals: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Mick McGuire of Marcato Capital Management and his presentation was entitled "Don't Buy This Recovery."  He pitched United Rentals (URI).

Mick McGuire's Value Investing Congress Presentation

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United Rentals (URI)

$5.9M market cap, $13B EV

5.6x EBITDA

12.2x P/E

Largest rental co in the world, built as a roll-up.

Fragmented market, they are biggest player but still only 15% of market.  400k unit fleet, original cost is $8B.  Just bought RSC that was 5% of the market, which added to their 10% share.

Pure play on North American Construction and Industrial markets.  NOT exposed to residential construction- that is only 4% of their revenue.  39% is Industrial, 47% is commercial construction.  Have yet to see a robust recovery in commercial construction.

Thesis: cyclical trends are positive, secular trends help, strategic merger creates the industry's only scale player.  Good capital structure, attractive valuation.  6.8% FCF yield, 12.2x P/E.  Says synergies, rides the cycle.  PT implies 72% appreciation.

Risks:  cycle.  How robust the recovery is.  Also, company could lose capital discipline and overspends on growth CAPEX.  They own 4.7% of the company and wield influence on CAPEX.  

MarketFolly note: URI was featured in the equity analysis section of our Hedge Fund Wisdom newsletter last year and is up 39% since then.

Q&A: 

On Sotheby's (BID):  How is the board reacting to their proposals?

"We've had a good dialogue so far."  

Be sure to check out the other presentations from the New York VIC here.

Marcato Capital Management Discloses Sotheby's Stake

Mick McGuire's hedge fund firm Marcato Capital Management today revealed a 6.61% ownership stake in Sotheby's (BID) with 4,511,719 shares, per a 13D filed with the SEC.  This is a brand new position for the hedge fund.

While they own common stock, the filing also highlights that the figures above are inclusive of stock options to purchase shares that are exercisable within the next 60 days.

The fine print of their filing contains the standard boilerplate, noting that they think the company is undervalued and may enter into discussions with the company.

The filing was required due to portfolio activity on July 23rd.

Per Google Finance, Sotheby's is "a global auctioneer of authenticated fine art, decorative art, and jewelry. The Company operates in three segments: Auction, Finance, and Dealer. The Company's Auction segment functions as an agent by offering works of art for sale at auction and by brokering private sales of artwork. Sotheby’s also purchases and resells works of art through its Dealer segment, conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in brand licensing activities. The Sotheby’s name is also licensed for use in connection with the art auction business in Australia, art education services in the United States and the United Kingdom and print management services."

Mick McGuire will also be speaking at the Value Investing Congress in a few months if you want to hear his latest investment ideas.  Market Folly readers receive a discount to the event by clicking here.