In a career marked by bold takeovers, Patrick Drahi’s bid for Sotheby’s ranks perhaps as the most surprising of all.
The Franco-Israeli magnate has long gone his own way in business, exploiting the risky debt market to help build France’s second-largest telecommunications company. And Drahi avoided the elite strongholds of Paris by registering Altice Europe NV in Amsterdam and settling in the Alpine town of Zermatt, Switzerland.
When this accomplished foreigner announced on June 17 that he would shell out $2.7 billion to buy Sotheby’s, the iconic 275-year-old auction house, a series of questions followed. Is he looking for a trophy asset to sit on his shelf, or will he shake up a company that had seen its stock price drop 40% in one year? Is it wise to take on more debt on Sotheby’s? And who is Drahi anyway?
One thing is already clear: the offer opens a new chapter for an entrepreneur who turned a $9,000 student loan into an $8.5 billion fortune, making him the sixth-richest person in France, according to the Bloomberg Billionaires Index.
It is also possible that other bidders will challenge Drahi’s bid, which was set at a 61% premium to Sotheby’s closing share price on June 14. the offer price. If Sotheby’s accepted a competing offer, it would have to pay Drahi a termination fee of nearly $111 million, according to a regulatory filing.
Regardless, Drahi, 55, said little about the reason for his acquisition in Monday’s statement, except that he has long been a client and admirer of Sotheby’s. He declined to be interviewed for this article.
Arthur Dreyfuss, spokesman for Drahi, said the purchase “is a long-term family investment in an industry he is passionate about.”
Art lover?
The auction shook up the art world and sent dealers looking for information on the man, who was not widely known as a serious collector. Experts steeped in the ebbs and flows of the market struggled to identify the paintings he purchased, although a person familiar with Drahi’s collection said he owned pieces by Picasso, Matisse and Chagall, as well as works by 19th century French masters Gericault and Delacroix.
Born in Casablanca, Drahi moved to southern France from Morocco when he was 15. He attended his first art auction around this time, although at that age he could only observe. That changed in 2007, the year he consolidated regional cable operators into a new company called Numericable. Drahi likes to steal an hour or two on business trips and visit local galleries and cathedrals, as he did on a recent detour to the Louvre outpost in the city of Lens, in the northern France, said the person, who asked not to be identified.
“Instant Fame”
The privatization of Sotheby’s after 31 years on the New York Stock Exchange will certainly make Drahi an influential figure in the fine art and collectibles market, which stood at $ 67.4 billion last year, according to a annual report published by UBS Group AG and Art Basel.
He will face François Pinault, the French billionaire who founded a luxury empire that encompasses names like Gucci and Saint-Laurent and controls Christie’s, Sotheby’s historic rival. In acquiring Sotheby’s, Drahi would mirror A. Alfred Taubman, the late American shopping center developer, who bought Sotheby’s in 1983 and took it private.
“People didn’t know Alfred very well at the time, but it brought him instant fame in the world of art and culture,” says Warren Weitman, former Sotheby’s executive and co-founder of Art Market. Advisors in New York.
Owning Sotheby’s would give Drahi a first taste of pieces hitting the market, as well as a ready outlet to sell his own works, industry experts said. Taubman bought sculptures by Alberto Giacometti and paintings by Georgia O’Keeffe and Picasso, among others, at auction, and by the time of his death in 2015 he had amassed a collection once valued at $500 million. (The businessman was convicted of price-fixing in an industry-shaking trial in 2001 and served nearly 10 months in prison).
“Coveted Works”
For his part, Pinault is among the best collectors in the world with works by virtually every major modern, post-war and contemporary artist. His $1.2 billion collection is so vast that he exhibits pieces in two palaces in Venice and builds a museum in Paris.
“I’m sure the idea of accessing the most coveted works before anyone else is an added bonus to this acquisition in Drahi’s mind, as must have been the case with an obsessive collector like Mr. Pinault” , says Wendy Goldsmith, founder of Goldsmith Art Advisory, a London-based consultancy.
Still, Drahi will be responsible if the finances of his new acquisition go wrong. Shaken by sudden swings in buying activity, the art world can be a volatile and impenetrable place. In 2016, for example, sales in China fell sharply and contributed to a 16% drop in Sotheby’s revenue, says Alex Maroccia, equity analyst at Berenberg Capital Markets in London.
Moody’s review
Despite the astronomical sums paid for the best work – Claude Monet’s ethereal rendering of haystacks called “Meules” fetched $110.7 million at Sotheby’s in May – the company has struggled to post consistent growth. In 2018, the company, which primarily earns money from sales commissions, posted net income of $108.6 million on revenue of $1 billion, down 8 .5% compared to 2017. In the first quarter of this year, it lost $7 million.
On Tuesday, Moody’s said Sotheby’s adjusted debt was five times its earnings before interest, taxes, depreciation and amortization, a high level for a luxury goods company. Moody’s, which already classifies Sotheby’s debt below investment grade, has placed the company under review for a credit rating downgrade. Drahi may be planning to fund much of his deal by selling more risky debt.
A high-tech redesign?
Drahi, a graduate of France’s elite engineering school, Ecole Polytechnique, might be tempted to put his technological expertise to good use. Sotheby’s mobile phone app already allows users to bid around the clock in online auctions of fine books and manuscripts or 19th-century European paintings. Last year, the company bought a New York-based startup called Thread Genius that uses “image recognition” software to offer users artwork they might like based on past purchases. It is widely believed that the art market has long been waiting for the kind of digital revolution that has transformed other industries.
But if Drahi plans to use digital automation to cut wages, Sotheby’s biggest expense, he may want to think again, experts said. The auction industry is always driven by relationships between sales representatives who know what art buyers want and well-heeled customers who need support and trust.
“Patrick Drahi may have room to cut costs, but not huge room to manoeuvre,” says Franck Prazan, owner of the Applicat-Prazan gallery in Paris.
More than anything, the art world is gearing up to see how newcomer Drahi takes on veteran Pinault. Locked in a fierce rivalry, Christie’s and Sotheby’s control around 20% of the global art market, according to the UBS report. Christie’s recorded $7 billion in sales last year, compared to $6.4 billion at Sotheby’s.
Whichever direction Drahi takes, there is bound to be drama as Sotheby’s joins Christie’s in the opaque world of private property and a new player makes his mark on an idiosyncratic industry.
“Every successful businessman who gets involved with auction houses thinks they can reinvent the wheel,” says Goldsmith, the art adviser. “Mr. Drahi may indeed find that he cannot reinvent the wheel, but he will have a lot of fun trying.
