Just as the art market began to cool down for the summer, came the surprise announcement that Sotheby’s, the 275-year-old auction house, will be sold for $3.7bn to BidFair USA, owned by the telecommunication and media tycoon Patrick Drahi. The deal valued Sotheby’s shares at $57 per share, or a 61% premium to their closing price on June 14.
According to a statement by Drahi’s office, no strategic or managerial changes will be implemented as part of the deal. Following the announcement however, a raft of questions rightfully followed: Will Drahi shake up the company that saw its stock price take a 40% tumble in one year? Is this just a trophy buy? Should Sotheby’s take on more debt? and who is Patrick Drahi anyway?
Drahi is a Moroccan-born, French-Israeli tycoon with an estimated net worth of $9.3bn. He is the founder and majority shareholder of the broadband group Altice. Since founding the company in 2001, he has aggressively acquired competitors to build an empire that spans much of the globe. The company is now a multinational broadband, telecom, media and advertising company with Drahi at the helm, holding 60% of its stock. Earlier this year, Drahi struck a deal to acquire Cheddar, an online-only finance news network, for $200 million. Apart from Cheddar, whose primarily millennial audience was likely its biggest selling-point, Drahi is known to use major leverage to buy undervalued assets and then aggressively cutting costs to grow the business.
His motives in getting into the art business remain unknown but according to him, he is a “longtime client and lifetime admirer” of Sotheby’s.
To contextualise the sale, it’s important to look at the history of Sotheby’s transferring ownership and jumping in and out of the public market. Sotheby’s has been listed on the New York Stock Exchange since 1988 as BID, making it the oldest firm there. Despite this however, it has never seemed to be fully comfortable as a public company. It has always been subjected to an intense level of scrutiny and transparency, including being forced to reveal its profits and outstanding guarantees, something its competitors (notably the privately owned Christie’s) can avoid. Also as a public company, Sotheby’s is forced to be open to vocal and active investors who each have somewhat of a say in the company’s strategic direction. Now, Sotheby’s can operate “in a more flexible environment”, as explained by chief executive Tad Smith in a statement following the sale.
This puts Drahi in direct opposition to Francois Pinault, another French billionaire who founded a luxury-goods empire that owns brands like Gucci, St. Laurent but also controls Christie’s, Sotheby’s historic contender. So far, the main theory behind the sale is the “trophy buyer” thesis, implying that Drahi purchased the company as a symbol of status, power and access, as opposed to a money-making venture.
Does Drahi have plans to one day list Sotheby’s back on the public market? It won’t be the first time. Sotheby’s was public in 1977 before A. Alfred Taubman, American mall magnate, bought it in 1983 and took it public yet again in 1988. As Drahi’s investment history implies however, private owners list companies publicly again only after they decide that the best way to raise significant funding is through an IPO. But while being a public company used to be the highest of achievements in the corporate world, this has somehow become less and less the case in the past decade or two.