Photo courtesy of Sotheby's
Originally Published By: artnet News on 06/19/2019
Written By: Eileen Kinsella & Tim Schneider
“What took so long to get that done?”
Art advisor Todd Levin told artnet News that was his only response to Monday’s blockbuster news that Sotheby’s auction house would be acquired and taken private for a hefty per-share premium of $57—or $3.7 billion in total. After all, it has been six years since activist investor Dan Loeb of Third Point LLC won a seat on the board, sparking a string of major management and strategy changes. “Clearly it was the endgame from the start of Loeb’s involvement,” Levin said.
Many shareholders and employees would agree. News that French-Israeli media tycoon Patrick Drahi would purchase the 275-year-old auction house and take it private is music to the ears of those who believe that the strict financial reporting standards associated with being a publicly traded company have long constrained Sotheby’s grand market ambitions. Meanwhile, it is discouraging for those who looked to Sotheby’s to provide some measure of transparency in a market that has very little.
“Taking Sotheby’s private allows them to avoid the type of public scrutiny on a guarantee with a Modigliani in 2018 where the stock tanked afterward,” said Alex Maroccia, an equity analyst with Berenberg Capital Markets, referring to an episode in which a Modigliani estimated to sell for $150 million sold for $139 million to the third-party guarantor, forcing Sotheby’s to take a loss.
Now that a private Sotheby’s will no longer have “one hand tied behind its back,” as it has sometimes been suggested in its competition with Christie’s, will it be a fair fight or an even more opaque art-world duopoly?
The Benefits of Going Private
It’s no secret that securing major consignments in today’s booming global market requires making major concessions to sellers. Sotheby’s often couldn’t make the same outsize promises as its archrival Christie’s, which is privately owned by luxury-goods magnate and fellow French billionaire François Pinault. It also suffered hefty drops in its stock price when it was forced to disclose that a major buyer had defaulted on payment or that aggressive guarantee deals had not gone according to plan.
These challenges had already been reality for years when Loeb took a stake in the company in 2013—and later joined the board along with two allies after a successful proxy fight. At the time, he criticized Sotheby’s for poor strategy, poor leadership, and poor expense control and called on the board to replace then-CEO Bill Ruprecht. Even then, there were whispers he might try to take the company private and the stock initially began to rise. Ruprecht stepped down in late 2014 and Tad Smith, former president and CEO of the Madison Square Garden Company, was appointed CEO. By mid-2016, Chinese insurer Taikang had amassed a 13.5 percent stake in Sotheby’s—the largest of any shareholder at the time.
Under Smith, Sotheby’s has expanded its digital initiatives and made major acquisitions like the reported $85 million addition of art advisory firm Art Agency, Partners, the scientific analysis firm Orion Analytical, and, more recently, artificial intelligence startup Thread Genius. But the stock price has been under pressure, and was down 40 percent in the last 12 months alone to about $34 from a high of around $57.
“Sotheby’s operating performance has been very strong, and the stock has not necessarily reflected that,” Tad Smith said in an interview about the acquisition on Monday. (He gave his only interview to Cheddar, a digital broadcasting network owned by Drahi’s company Altice.) “So one of the things that we thought was really exciting at this point in our time with our investment program and digital initiatives, we thought would be better served in a private environment and Patrick is a long-term investor with a long-term view and that should be good for both clients and employees.”
News of the sale has caused a sharp uptick in the stock. On Monday, shares of Sotheby’s, which trades on the New York Stock Exchange under the symbol BID, rocketed up nearly 60 percent to over $56 a share and were still trading around that level yesterday.
Taking Sotheby’s private “makes sense as investors have long suggested that [the auction house] is better in private hands given the vagaries of the art market and given more volatile quarterly earnings,” wrote Raymond Stochel, an analyst with Consumer Edge Research. He suggested Drahi, who has said he does not want to make any major changes to Sotheby’s and that current management will stay in place, plans to hold the auction house long-term rather than flip it for a profit. “We see this as syncing with the ‘trophy buyer’ thesis as Mr. Drahi is reportedly worth roughly $10 [billion],” Stochel said.
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