At Art Basel last week in Switzerland, two patrons sneaked off for lunch together. Away from prying eyes of the fair’s elite attendees, Patrick Drahi, a voracious telecoms and cable dealmaker, met Sotheby’s chairman Domenico De Sole.
The art lovers and collectors in attendance had no idea that the pair were in the final stages of thrashing out a sale of Sotheby’s. Announced on Monday, the $3.7bn deal sees the 55-year-old Mr Drahi step outside his telecoms and media empire and return the auction house to private ownership after more than three decades as a public company.
Mr Drahi, whose acquisitive predisposition and penchant for leverage has seen his Altice group amass €50bn in debt over the past two decades, said in a statement: “I am making this investment for my family, through my personal holding, with a very long-term perspective.”
One adviser on the deal said: “It’s about legacy.”
The intensely private Mr Drahi’s personal collection includes 20th century works by the likes of Pablo Picasso and Henri Matisse, and he is also keen on French Orientalist painters such as Théodore Géricault, Théodore Chassériau and Eugène Delacroix.
Yet, before his surprise acquisition of Sotheby’s was unveiled, he remained relatively unknown both on the art scene and among Sotheby’s investors. Dan Loeb, the activist hedge fund manager whose group Third Point has been invested in Sotheby’s since 2013, did not know much about Mr Drahi until recently, according to a person with knowledge of the matter. Mr Loeb stands to make a profit of $125m if the deal is completed.
“In the world of art, he has little recognition, except that he buys every now and then,” said a billionaire art collector. “Sotheby’s is a superb brand, which never makes money, but it gives its owners a seat at the table of the rich and famous.”
The company last year earned a profit of $109m on revenues just over $1bn – a net profit margin of around 10 per cent. The transaction by Mr Drahi’s BidFair holding company represents a 61 per cent premium to Sotheby’s most recent closing price.
“I think he’s bonkers to pay that price,” added a prominent London art dealer. “Sotheby’s shareholders will be jumping up and down for joy.”
Mr Drahi said on Monday that he was “100 per cent committed” to Altice and that the telecom and media industries would remain his main focus.
However the Sotheby’s acquisition shows how the centre of gravity of his business interests is increasingly shifting to the US, where he was first lured as a young man after observing that the Forbes list of the world’s wealthiest people included a significant number of American cable entrepreneurs.
Mr Drahi leads a peripatetic existence outside the French establishment. Born in Morocco, the married father of four moved to France as a teenager, and now holds French, Israeli and Portuguese citizenship, with houses in Geneva and the Swiss ski resort of Zermatt.
After extending its reach beyond France into Portugal, Israel and the Dominican Republic, Altice has most recently been increasing its footprint in the US, notably with the acquisitions of cable operators Suddenlink in 2015 and Cablevision in 2016, as well as digital-first news company Cheddar in April.
Indeed Mr Drahi said on Monday that the Sotheby’s investment “will further demonstrate the anchoring of my family in the United States, a country where we have been very welcomed”.
All of this raises questions about Mr Drahi’s commitment to his traditional base in France, where he has struggled to turn round SFR, the country’s second-biggest mobile operator that Altice acquired in 2014.
Bankers believe that the increasing firepower that Mr Drahi is deploying in the US could pave the way for him to cede control of SFR if the long-awaited consolidation of the French telecoms market ever comes to fruition.
“I didn’t see the Drahi Sotheby’s deal coming,” said one banker in Paris. “It’s quite surprising; you would have thought that Drahi would be saving his money to keep control of SFR. You’d have expected the buyer to be Bernard Arnault.”
Chairman and chief executive of luxury group LVMH, Mr Arnault tried unsuccessfully to break up the duopoly between Christie’s and Sotheby’s when he bought a stake in Phillips auction house two decades ago – which it has subsequently sold.
Nonetheless, Mr Drahi’s acquisition of Sotheby’s means that the world’s two largest auction houses are now both in the hands of French billionaires. Two decades ago, arch rival Christie’s was bought by Artemis, the holding company of France’s Pinault family, for $1.2bn.
For Sotheby’s, the deal buys the group some breathing space outside of the glare and volatility of the public markets. It comes at a time when, like its main rival Christie’s, Sotheby’s has been trying to develop new ways of doing business.
Both groups are trying to adapt to new digital technology and emerging competition from new players eager to cater to changing consumer habits, by developing areas such as online auctions.
“Private ownership at this moment in Sotheby’s development would empower us to accelerate many of those growth initiatives and focus on long-term success,” said Sotheby’s president and chief executive Tad Smith in a note to clients following the deal announcement, adding that there would be no immediate changes to the business.
Evan Beard, head of art services for Bank of America Private Bank, said: “Now that each auction house is on a level playing field and has the same stakeholder base – their ownership structures are very similar – rather than go into a race-to-the-bottom death-match for market share, you’ll see them look for ways to grow market share competitively rather than just giving away margin.”
Mr Beard added that the two were likely to continue to work aggressively to win ultra-high-end works – those valued at more than $10m – with guarantees, but that on lower-valued works they would seek to protect margins.
Sotheby’s and Christie’s have had a spree of record-breaking art auctions over the past two years, as the market has recovered from a lull that coincided with a broad downturn in financial markets.
Some cautioned that Mr Drahi’s acquisition of Sotheby’s reflected a frothy market in terms of valuations.
“If the Chinese or Qataris did not buy Sotheby’s already, it tells you how bad it is,” said one London-based art consultant to high-net-worth individuals. “This is just another sign that this is the top of the market.”
Additional reporting by Lindsay Fortado in New York