It was an awkward several minutes in May 2018 when Helena Newman tried in vain to elicit a bid for Amedeo Modigliani's masterpiece "Nu couché". As the Sotheby's auctioneer, it fell to Newman to find a bidder willing to raise a paddle. Months later, the Sotheby's board was doing the same, as it worked to clinch a much more valuable sale: its own.
With a shareholder vote looming in just over two weeks, one of the largest Sotheby's shareholders has come out against the US$3.7 billion ($5.7b) sale of the company to billionaire telecoms executive Patrick Drahi.
UK-based fund manager RWC Partners, which holds a 2.5 per cent stake in Sotheby's, has raised several concerns over the deal, including its price.
The intervention from RWC follows disclosures about the sale process that Sotheby's filed earlier this summer, including its decision not to contact its largest investor — China's Taikang Life Insurance — for a counter bid as negotiations with Drahi and several other parties advanced.
The Beijing-based insurer, which owns about 17 per cent of Sotheby's, was considered to be a potential buyer by other investors, according to RWC.
"Of all people, I would expect Sotheby's to understand the importance of maximising the number of bidders in the room if we are to get a fair price for our assets," wrote Louise Keeling, global head of equities at RWC Partners, in a letter to Domenico De Sole, the auction-house's chairman, seen by the Financial Times.
The company's shares have rallied above the US$57 per share takeover price agreed with Drahi, partly driven by expectations of a counter bid. The independent Sotheby's board member designated by Taikang suggested the auction house could fetch close to US$100 a share in a sale, according to documents filed with US securities regulators.
Drahi's offer represented a 61 per cent premium to Sotheby's share price before the deal was announced, but that followed a near 40 per cent drop in it stock over the preceding year on investor concerns the art market would be hit by slowing global growth.
As of early August no other bid has been tendered, according the proxy materials.
Sotheby's shocked the auction world in June when it agreed to sell itself to Drahi, a deal that if completed would end more than three decades of public ownership of the auction house.
In its letter, RWC said it believed "the intrinsic value of Sotheby's is significantly higher than the proposed US$57 per share". Central to its complaint is a change to the company's financial forecasts that Sotheby's management made earlier this year.
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In May, management estimated the business could generate between US$273 million and US$493m in earnings before interest, taxes, depreciation and amortisation in 2023. It's central case saw the company's earnings rising nearly 90 per cent from 2018 levels to US$440m.
However, by June that base case forecast for 2023 earnings was reduced to US$322m.
Drahi first approached Sotheby's in late 2018 and said in May that he intended to submit a formal offer.
"On valuation, there appears to have been a concerted effort by the board to beat down management's projections," Keeling wrote.
Keeling also questioned why Sotheby's had picked boutique investment bank LionTree as its financial adviser. The asset manager insinuated in its letter that the New York-based adviser was conflicted as it had first approached the auction house on behalf of Drahi and two other unnamed buyers. According to the proxy documents, LionTree was not working on behalf of Drahi or the other interested bidders.
LionTree did not respond to a request for comment.
The Sotheby's board decided against holding a more expansive auction process, which is common in many sales processes, out of fear it would "damage its business activities with clients" and could keep some art collectors from consigning new works to the auction house, the proxy documents showed.
"As RWC was told in response to its letter, a close reading of the proxy shows that all questions raised are unfounded, and Sotheby's board of directors continues to enthusiastically support the proposed merger with Patrick Drahi," the auction house said in a statement.
A shareholder vote on the transaction is due on September 5 and will be held in the very building where Newman brought the hammer down on the Modigliani last year. Some investors are hoping that unlike that sale, when a pre-arranged buyer ended up winning the oil painting after collectors in the room refused to bite, a topping bid will emerge.
Written by: Eric Platt, Lindsay Fortado and James Fontanella-Khan
© Financial Times