The 4 D's reasons for selling
Why do rich clients sell their collectibles? Clients typically sell because of death, divorce, discretion and debt. Clients include 68 of the Forbes 100 richest people. 164 of the Forbes Top 500 CEOs and 169 of the Art News' Top 200 collectors. Basically if you have to sell through Sotheby's it means you're doing pretty well!
The 4 D's are now extending their reach to China. In late 2012 Sotheby's received approval from the Chinese government to operate a joint venture in the mainland.
Show me the money (or debt)!
Hedge funds like Sotheby's for the headquarters (they would like to sell it) and the financial services business. Sotheby's made the brilliant purchase of their New York headquarters near the bottom of the market in 2009 for $370 million and the assumption of its mortgage for $235 million. Sotheby's has informed the market that they are looking at all options to see what would be best for shareholders. Given the market capitalisation of $3.2 billion any sale of the property would be material to shareholders.
Financing began in 1998 to drive auction business but financing has become a profit driver for the company. Since inception Sotheby's have lent $3.5 billion and have only suffered $11.5 million (0.3%) of total loans lost. Financing art is surprisingly an art and banks tend not to get involved in the business. Sotheby's can also offer discretion in lending. The portfolio has increased by 30% in the past year to total $430 million at June. Many funds believe that there are more effective alternative financing structures available to Sotheby's than using their own balance sheet which could free up more cash.
Hedge funds are bidding
Dan Loeb's Third Point disclosed a 5.7% stake just a month after Marcato Capital Management reveled their 6.6% stake. Dan Loeb and his wife are noted art collectors both funds seek to engage with management to increase shareholder value.
Jason
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
