Issue #252  7/1/2019
Sotheby’s Signs “Definitive Agreement” to Be Acquired by BidFairUSA; But Wait, There May Still Be a Twist

By Alex Novak

Sotheby's has itself gone under the hammer; however, the winning bid may or may not hold up. (Photo by Alex Novak)
Sotheby's has itself gone under the hammer; however, the winning bid may or may not hold up. (Photo by Alex Novak)

Last month Sotheby’s signed a "definitive" merger agreement to be acquired by BidFair USA, an entity wholly owned by the French-Israeli “media and telecom entrepreneur, as well as art collector”, Patrick Drahi, as Sotheby’s press release described him. Essentially under the terms of the agreement, which was approved by Sotheby’s Board of Directors, shareholders, including employee shareholders, will receive $57.00 in cash per share of Sotheby’s common stock in a transaction with an enterprise value of $3.7 billion. The offer price represents a premium of 61% to Sotheby’s closing price on June 14, 2019, and a 56.3% premium to the company’s 30 trading-day volume weighted average share price.

The transaction would result in Sotheby’s returning to private ownership after 31 years as a public company traded on the New York Stock Exchange. Sotheby's will now, like its rival Christie’s, become a private company owned by another French multi-billionaire. Transparency for the company’s transactions will now be largely non-existent, as it already is for Christie’s and Phillips. Financial deals worked out by those two private firms with buyers, sellers and lot guarantors doesn’t have to be disclosed, and some feel that the owners of those companies were often involved as members to those transactions in one or another capacity. As private companies, unlike Sotheby’s which was held to more transparency through its obligatory filings, they had the capability of being “more creative” in financing and, some might say, potentially more manipulative with their markets. The level of guarantees and other information, such as the existence of defaulting buyers, just doesn’t need to be reported when you are a private company. As of the fourth quarter, pending stockholder approval, which is likely, Sotheby’s will be on equal footing with the other two big international auction houses, but the art and collectibles market will lose the last bit of its transparency.

Of course, this isn’t the first time that Sotheby’s has been a private company. Real estate developer Alfred Taubman bought the company and took it private in 1984, but then a mere four years later took it public, listing it on the New York Stock Exchange under the eponymous ticker name of BID. Of course, Taubman infamously conspired to fix sellers’ fees with rival Christie’s and got sentenced to a year and a day in prison for his actions in 2003. Christie’s Chairman Sir Anthony Tennant, who lived in the UK, never faced charges over the incident. Sotheby’s faced several huge class action suits and government fines, which they settled for well over a half billion dollars. Some feel that none of this would have happened had the company been privately held at the time.

A few art world observers, such as Georgina Adam of the Art Newspaper, have questions about Patrick Drahi and his intentions with Sotheby’s. As she notes in a recent article on the potential acquisition: “…Drahi does not come to the table with an entirely straightforward reputation. In France, where he built up his $7.7bn fortune—the 190th in the world, according to Forbes—in telecoms, his highly leveraged deals and cost cutting at the communications giant SFR were wildly unpopular. A graduate of the Ecole Polytechnique, France’s most prestigious institution, he remains a financier above all and is not known as a major art collector like François Pinault. Drahi’s approach was, reportedly, unsolicited and his exact motivations for buying Sotheby’s remain a mystery. In a statement he simply says he has been “passionate about this industry” all his life and that Sotheby’s “opportunities and growth potential are significant”. Whatever, it appears he has designs on expanding his status beyond the media and telecoms world.”

So, is this all the done deal that it seems? Well, maybe.

The New York Post indicated in a recent article that Drahi might yet get at least two competitors, who might offer rival counter bids. The paper’s sources claimed that some deep-pocketed art lovers were trying to put together a better offer for Sotheby’s. The article’s co-authors reported, “…Insiders speculated that prolific art collectors on Wall Street like Ken Griffin, Steve Cohen and Henry Kravis could be among them…Alexander Klabin--a low-profile investor in his early 40s who co-manages the New York hedge fund Senator Investment Group--is among those who have been approached to finance a competing offer, sources said.”

“Meanwhile”, according to the Post, “Hong Kong-based Taikang Asset Management, the largest Sotheby’s shareholder with a 17% stake, is likewise weighing whether to best Drahi’s offer, a source said.”

All this was reportedly after Drahi had already beaten out a competing offer before the Sotheby’s agreement was signed and announced. Apparently the agreement to sell was reached under pressure from activist investor Dan Loeb, according to the newspaper article. According to the regulatory filing, a termination fee of more than $110 million would have to be paid to Drahi by Sotheby’s if the company failed to go through with agreement. As part of its merger agreement with Drahi, Sotheby’s is not allowed to solicit new offers. However, the company’s board can listen to offers brought to it unsolicited. A fine distinction indeed.

A shareholder vote is expected to happen around September, giving potential new bidders at least a month to submit an alternative offer. Keep tuned in. This is getting interesting.

Novak has over 45 years experience in the photography-collecting arena. He is a long-time member and formally board member of the Daguerreian Society, and, when it was still functioning, he was a member of the American Historical Photographic Society. He organized the 2016 19th-century Photography Show and Conference for the Daguerreian Society. He is also a long-time member of the Association of International Photography Art Dealers. Novak has been a member of the board of the nonprofit Photo Review, which publishes both the Photo Review and the Photograph Collector, and is currently on the Photo Review's advisory board. He was a founding member of the Getty Museum Photography Council. He is author of French 19th-Century Master Photographers: Life into Art.

Novak has had photography articles and columns published in several newspapers, the American Photographic Historical Society newsletter, the Photograph Collector and the Daguerreian Society newsletter. He writes and publishes the E-Photo Newsletter, the largest circulation newsletter in the field. Novak is also president and owner of Contemporary Works/Vintage Works, a private photography dealer, which sells by appointment and at exhibit shows, such as AIPAD New York and Miami, Art Chicago, Classic Photography LA, Photo LA, Paris Photo, The 19th-century Photography Show, etc.