Billionaire Patrick Drahi has bought Sotheby's. Photo / Getty Images
In recent years, the competition between the world's two largest auction houses, Sotheby's and Christie's, has seemed at times like a bit of an unfair fight.
Sotheby's, which is publicly traded, has lost out to its privately held archrival for several headline-grabbing consignments. Last year, Christie's sold the collection of Peggy and David Rockefeller for US$835 million ($1.2 billion), the highest-grossing auction ever of a private collection. In 2017, Christie's sold Leonardo da Vinci's "Salvator Mundi" for US$450.3m, the highest auction price ever for a work of art.
Both auctions were underpinned by financial guarantees arranged by Christie's, which since 1998 has belonged to a holding company owned by French billionaire François-Henri Pinault.
Wendy Goldsmith, a London-based art adviser and former head of 19th century European art at Christie's, noted the advantage gained by an auction house owned by a wealthy individual. "If you wanted to get something done," she said, "you went to the man with deep pockets."
On Monday, Sotheby's moved to level the playing field, agreeing to be acquired by a billionaire of its own, French-Israeli telecommunications entrepreneur Patrick Drahi, in a deal worth US$3.7b ($5.6b). The purchase, by Drahi's BidFair USA, returns the only publicly traded major auction house to private ownership after 31 years on the New York Stock Exchange.
About US$2.66b of the purchase price will be paid in cash, with Sotheby's shareholders getting US$57 per share of their common stock. That is a 61 per cent premium over the stock's closing price on Friday. Sotheby's shares jumped 58 per cent in trading Monday after the deal was announced.
"This acquisition will provide Sotheby's with the opportunity to accelerate the successful program of growth initiatives of the past several years in a more flexible private environment," Tad Smith, the chief executive of Sotheby's, said in a statement.
Flexibility is something Sotheby's has sorely lacked. As a publicly traded company, it has had to justify every business decision and explain every market fluctuation to shareholders on a quarterly basis. That is a challenge for a business that relies on seasonal revenue and is strongly dependent on the quality of consignments in any given sale.
Guy Jennings, a former deputy chairman of Sotheby's Europe who is now managing director of the Fine Art Group, an advisory company based in London, said that having to answer to shareholders had consistently left Sotheby's lagging behind Christie's.
"They've not clawed back any ground," he said.
Sotheby's had US$6.4b in total sales last year, fueled in part by a 37 per cent increase in private transactions. It had net income of US$108.6m, down from US$118.8m the previous year. Christie's had US$7b in total sales in 2018. As a private company, it does not report profits or losses.
It may have regularly trailed Christie's in recent years, but Sotheby's has had its moments. In 2017, it achieved an auction record of US$110.5m for a painting by Jean-Michel Basquiat, and it set a salesroom high of US$110.7m last month for a work by Claude Monet. Last year, its auction in Paris of the collection of Pierre Bergé, the former partner of Yves Saint Laurent, raised US$32.4m, more than four times the presale high estimate.
Drahi, who founded the telecom company Altice in the Netherlands in 2001, said in a statement that he remained "100 per cent committed" to the telecom and media industries and that he was honored the Sotheby's board had embraced his offer.
"As a longtime client and lifetime admirer of the company, I am acquiring Sotheby's together with my family," said Drahi, who is known as a collector of modern and impressionist works.
Drahi added that he was making the investment with a "very long-term perspective" and that he did not anticipate any changes in the company's strategy.
The deal comes about six years after Daniel Loeb, whose hedge fund, Third Point, holds a stake in Sotheby's, called for the resignation of Bill Ruprecht, the auction house's chief executive at the time.
"We have heard many excuses — but no good reasons — why Sotheby's competitive position is deteriorating, such as: 'Christie's is buying market share and making uneconomic deals to make headlines,' or 'Christie's is private and doesn't have to disclose its guarantees,'" Loeb, a member of the Sotheby's board, wrote in a letter urging Ruprecht's ouster and bemoaning a share price that was then stalled at about US$51.
Smith, a former chief executive of the Madison Square Garden company, succeeded Ruprecht as chief executive in 2015, but profitability has remained a continuing challenge for Sotheby's. In 2016, the company tried to solidify its share of the top end of the market by paying up to US$85m to acquire Art Agency, Partners, a boutique art advisory firm. But at US$35.38, its closing price on Friday, the company's stock had fallen well below its 2013 level.
"It was ripe for picking," Goldsmith said.
Loeb said in a statement that he was "pleased to see Sotheby's pass into such capable hands."
Drahi was born in Casablanca, Morocco. His parents were math teachers, and he showed an early aptitude for numbers. The family moved to France when he was a teenager, and he attended prestigious universities with the goal of becoming an electrical engineer.
Soon after joining Dutch electronics giant Philips, he abandoned a traditional corporate career for the less-predictable life of a telecom entrepreneur. He drew inspiration from American moguls like John C. Malone who made their fortunes in cable television. Drahi founded a regional cable company in France that he later sold to an arm of Malone's empire, using the proceeds to found Altice.
He has continued to pursue ambitious deals since then. Under Drahi, Altice made expensive, often debt-fueled bids for cable assets around the world, including HOT in Israel and Suddenlink in the United States. In 2014, he defeated a stalwart of French industry, Martin Bouygues, to acquire Vivendi's SFR division in a deal valued at 17 billion euros (about US$19b at current exchange rates).
Altice gained a new level of prominence in 2015 amid speculation that it was preparing to bid for Time Warner Cable after regulators blocked Comcast's proposed takeover of the company. The price turned out to be too high for Drahi, and Charter Communications wound up buying Time Warner Cable.
Altice made a major cable acquisition in the United States later that year, leading a US$17.7b takeover of Cablevision. Drahi merged the company with another Altice-owned cable operator and rebranded the operation as Altice USA, which acquired the online news network Cheddar for US$200m in April.
In addition to a penchant for buying undervalued assets, Drahi has a reputation for cutting costs. How he might apply that practice to Sotheby's remains to be seen. Also unclear is whether Smith was party to the takeover or will become a casualty of it. He has a connection to Drahi through the Dolan family, which sold Cablevision to Altice.
Drahi is largely unknown in the art world. The pieces he collects typically sell for less than US$5m, a far cry from the sky-high prices that dominate the contemporary art market.
"Most people don't seem to know who he is," said art dealer Brett Gorvy, a former Christie's executive who operates galleries in Geneva, London and New York."He's not a Pinault in terms of his level of buying."
It is perhaps not surprising then that Drahi's purchase of Sotheby's mystified some art executives.
"Is it a real estate deal?" asked Jennings of the Fine Art Group. "Is it prestige? Is he taking on Pinault?"
Written by: Scott Reyburn, Michael J. de la Merced and Amie Tsang
Photographs by: Natalie Keyssar
© 2019 THE NEW YORK TIMES
'I can imagine people being outraged that TVNZ signed a deal with me.'