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The Morning Brief: Marcato Urges Lear to Spin Off Electrical Unit

Richard (Mick) McGuire III’s San Francisco-based Marcato Capital Management sent a letter to auto supply company Lear, urging it to break into two separate units — its auto seat business and its electrical division, according to CNBC. McGuire reportedly told the company that this action would create “a faster-growing, higher-margin business with secular tailwinds that we believe deserves a higher multiple.” McGuire was referring to Lear’s electrical business. McGuire reportedly believes that if Lear acts on this recommendation, the stock could be worth 45 percent more than its recent price, or a combined $145 per share. Marcato owned 4.58 percent of the company as of the end of September.

“Given the substantial value to be created by a separation, we believe it is the board’s and management’s responsibility to explore the opportunity,” he reportedly wrote in the letter, which was not made public. Lear responded in a press release acknowledging that it received a strategy recommendation from Marcato and detailing several ways it has delivered “significant value” to shareholders.

“Lear’s shareholders have benefited from the company’s successful execution of its balanced strategy: investing in the business, pursuing value enhancing acquisitions, maintaining a strong and flexible balance sheet and returning capital to shareholders,” Lear said that it would review the proposal. “This strategy is delivering consistently improving financial results and driving superior returns for shareholders,” the company wrote.

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Sometime-activist investor Soroban Capital Partners disclosed in a fresh 13D filing that it owns 9.98 percent of California Resources Corporation, a producer of oil and natural gas in California. The New York-based hedge fund firm headed by Eric Mandelblatt did not make any recommendations in its filing, but warned it may discuss certain issues with management, such as a possible sale or merger. The filing was made jointly with Seis Holdings, a Houston-based private investment firm. Soroban did not respond to requests for comment.

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In other activist news, Clifton Robbins’ Blue Harbour Group bought another 300,000 shares of The Babcock & Wilcox Company for between $27 and $30.50 per share, boosting its stake to 9.9 percent. The Greenwich, Connecticut-based activist initially disclosed its position in May.

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William Ackman’s Pershing Square Capital Management said its stake in Platform Specialty Products Corporation has declined to 22.2 percent. However, it added that it has not sold any shares. Rather the reduction in its stake was the result of the specialty chemical maker issuing addition shares to third parties. In October the New York activist boosted its stake to 26.1 percent, as part of a private placement and changed the investment’s status from “passive” to “active.” In the filing, Pershing Square said it has a representative on the company’s board and may engage in discussions “that may relate to governance and board composition, management, operations, business, assets, capitalization, financial condition, strategic plans and the future” of the company.

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Daniel Och’s OZ Master Fund rose 0.80 percent in January, according to a regulatory filing. His OZ Asia Master Fund rose 2.04 percent, while the OZ Europe Master Fund climbed 1.61 percent. New York-based Och-Ziff Capital Management also said in the filing that assets under management now stand at about $46.7 billion, up $700 million from the prior month. The figure includes January’s performance and capital flows from January 2 through February 1. It also includes a $152 million reduction in assets resulting from the expiration of the investment period of one of its credit funds. The publicly-traded firm also said assets under management includes gross assets on which management fees are based for certain performing credit products, which resulted in a $167 million increase in total assets.

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Guggenheim Partners announced that it has sold Guggenheim Global Trading, a multistrategy platform, to an investor group led by GGT Management. It will now operate under the name of Deimos Asset Management and retain the current senior team, led by Loren Katzovitz and Patrick Hughes. In addition, Mark Standish, former co-CEO of RBC Capital Markets, will join Deimos as a managing partner. Also, Ares Management has made an equity investment in Deimos, according to the announcement.

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