Art auction house Sotheby’s will be taken private by billionaire Patrick Drahi-owned company BidFair USA at a high premium, the company announced Monday.
Drahi, a long-time media titan and avid art collector, will take Sotheby’s private after 31 years on the market as a public company at a $3.7 billion price tag.
“Sotheby’s is one of the most elegant and aspirational brands in the world,” Drahi said in a statement. “As a longtime client and lifetime admirer of the company, I am acquiring Sotheby’s together with my family.”
According to a statement from the company, shareholders will receive $57 in cash per share of common stock from the deal–a 61% premium on Sotheby’s close on Friday.
But for some analysts, that 61% premium is inexplicably high given the niche market Sotheby’s operates in.
“It’s a big premium,” Alex Maroccia, an equity research analyst at Berenberg Capital Markets, said. “This premium implies nearly all-time highs for the stock. It’s a lot higher than where we had it valued because it’s not a very transparent business. The auction market itself is pretty risky because it’s cyclical and there are these auction guarantees that Sotheby’s gives out that, when investors hear about them, if they take a loss, it almost comes out of the blue. So the lack of transparency makes the stock trade at somewhat of a discount. It’s a really tough business to value in that regard, plus, I don’t know how they got $57 per share.”
In fact, Maroccia, who has been following the company, claims Drahi may have seen the deal as an opportunity to get in on an industry he is well acquainted with from the customer side. And, according to Maroccia, Sotheby’s recent attempts to make their operations leaner may have sweetened up the deal.
“Maybe [Drahi] thought that he would be able to get it at a discount, maybe [he] saw an upswing in the operations–because they have been taking a much leaner approach in recent years, trying to reduce the risk from the auction guarantees, making sure they’re not giving out ridiculous loans on the financing side,” Maroccia said.
Still, the deal, which was approved by Sotheby’s board of directors and shareholders, comes at a time when the company’s stock was down 40% over the past 12 months. To boot, the company’s earnings over the past year have been weaker, reporting a loss of $7.1 million in its 1st quarter earnings report this year–a 9% increase from the same period last year.
“On the operational side, they haven’t really outlined a strategy now that could get them there in terms of where we see their growth,” Maroccia said. “The business has been moving more online recently, so the margins have been benefiting from that. Honestly, after that, I don’t really see what’s going to bridge the gap here because they haven’t done a transformative acquisition in recent years–they’ve kind of focused their acquisition efforts downmarket to increase their total addressable market, but that still doesn’t make up this $18 difference.”
But according to the New York-based company’s executives, Sotheby’s is optimistic about being private once more.
“[Drahi] has a long-term view and shares our brand vision for great client service and employing innovation to enhance the value of the company for clients and employees,” Sotheby’s CEO Tad Smith said in a press release. “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. It positions us very well for our future and I strongly believe that the company will be in excellent hands for decades to come with Patrick as our owner.”
Sotheby’s, which was founded in 1744, saw shares pop 58% in intraday trading on the news.
The deal represents somewhat of a departure from Drahi’s expenditures in recent years. Drahi, who founded telecom company Altice in 2001, has since acquired cable and internet provider Cablevision in 2016 for some $17.7 billion.
And while Sotheby’s is crossing back over to private territory, competitor Christie’s (which is private) doesn’t appear to be making any changes.
“It was ripe for Sotheby’s to go private,” Philip Hoffman, chief executive officer of the Fine Art Group and a former Christie’s executive, told Bloomberg on Monday. “Christie’s has more advantages being run privately and not having public quarterly reporting that puts pressure on their ability to do deals.”
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