Middleburg Financial in Middleburg, Va., is facing pressure from its biggest shareholder to find a buyer.
David Sokol, chief executive of Teton Capital in Jackson, Wyo., disclosed in a recent regulatory filing that he wants Middleburg's board "to initiate a process to explore strategic alternatives." Sokol individually owns about 30% of the $1.3 billion-asset company's stock.
Sokol, in a March 31 letter to Middleburg's board, pressed for the creation of a special committee of independent directors to consider way for shareholders to "realize the full value of their investment." He expressed concerns about the company's ability to generate a return on equity necessary to cover its cost of capital.
"Shareholders … are not being adequately compensated for the risk they are taking in owning the stock," Sokol wrote. "I believe the time has come for the board to take advantage of current M&A market conditions to enable its shareholders to realize the [company's] intrinsic value. … Maintaining the status quo is unacceptable."
Sokol, who has increased his investment in Middleburg since buying $5 million in stock in 2009, noted in his filing that he could look to contact a number of other parties to discuss his views on the company, including "a potential acquisition … by an outside third party."
"Our board … and management team value the views of all shareholders and welcome input towards the goal of enhancing shareholder value," a Middleburg spokeswoman said in an email. "We have appreciated our long-standing relationship with Mr. Sokol and look forward to maintaining our constructive dialogue. We remain committed to executing on our strategic initiatives to grow the business, deliver robust financial performance and enhance shareholder value."
Sokol, once considered a possible successor to Warren Buffett at Berkshire Hathaway, abruptly left the conglomerate in early 2011. Berkshire's audit committee later accused Sokol of misleading the company about his personal stake in a personal investment that he recommended as an acquisition target, though the Securities and Exchange Commission declined to go after him.
Middleburg recorded a $3 million impairment charge in the fourth quarter tied to a participation loan in which the borrower filed false accounts receivable reports. Despite the charge, the company still earned $7.8 million last year.