By David Benoit 

Marcato Capital Management LP called on Sotheby's to repurchase $500 million in stock, a week after the auction house said it was putting a hold on capital returns while it hunts for a next chief executive.

The move may open up a rift between Marcato, the company's second-largest shareholder with a 7.4% stake, and fellow activist Daniel Loeb, who sits on the board, which made the decision to announce the freeze on capital returns. Mr. Loeb's Third Point LLC is the largest shareholder with a 9.6% stake.

Andrew Gully, a spokesman for Sotheby's, said the company stands by its statement last week regarding capital allocation and declined to comment further. Third Point declined to comment.

Mr. Loeb last year ran a heated proxy contest to gain representation on the Sotheby's board, a fight he eventually settled in return for three board seats. While the two activists weren't partners in the campaign, Marcato stumped for Third Point's election, telling shareholders that Mr. Loeb would bring a "sense of urgency and mandate to maximize value."

Marcato's letter to Sotheby's lead independent director Domenico De Sole shows the activist still wants the company to act with more urgency.

"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's Mick McGuire wrote in the letter, reviewed by The Wall Street Journal. CNBC reported on the letter earlier Friday.

The hedge fund sent the letter after Sotheby's announced last Friday that it would temporarily stop capital returns to shareholders to "preserve flexibility as it searches for a new Chief Executive Officer."

The company later clarified that only its special dividend wouldn't be paid and it would continue paying its quarterly dividend as usual. During Mr. Loeb's campaign, Sotheby's announced a $300 million special dividend and a plan to repurchase $150 million in stock.

Sotheby's announced in November that CEO William Ruprecht would step down . He plans to leave his post when his successor is named.

Marcato said on Friday that the new CEO should seek a replacement for Sotheby's current Chief Financial Officer Patrick McClymont, who was hired in September 2013. Mr. McClymont, then a banker at Goldman Sachs Group Inc., earlier that year participated in an email exchange with Sotheby's executives that questioned Marcato's motives in its campaigns.

The emails were disclosed in a lawsuit stemming from Mr. Loeb's Sotheby's campaign.

Separately, Sotheby's on Wednesday announced a 25% stake in RM Auctions, an auctioneer of collector automobiles. The move signaled to many in the art world that Mr. Ruprecht, a car aficionado, is still flexing his muscle at the company.

The deal gives Sotheby's the opportunity to increase its ownership stake in RM Auctions over time, the company said in a statement. Sotheby's first auction with RM, which will be renamed RM Sotheby's, is scheduled for March 14.

Sara Germano contributed to this article.

Write to David Benoit at david.benoit@wsj.com

Access Investor Kit for The Goldman Sachs Group, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US38141G1040

Access Investor Kit for Sotheby's

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US8358981079

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Sothebys (NYSE:BID)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Sothebys Charts.
Sothebys (NYSE:BID)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Sothebys Charts.