EXCLUSIVE: Sotheby's CEO Says Going Private Will Spur Innovation

June 17, 2019

By Carlo Versano

Sotheby's, one of the world's oldest auction houses, is being acquired by Patrick Drahi, the founder and controlling shareholder of European telecom giant Altice, in a $3.7 billion deal, the company announced Monday.

Altice USA, a subsidiary of Altice, is the parent company of Cheddar.

Drahi is a "long-term investor with a long-term view," Sotheby's CEO Tad Smith told Cheddar in an exclusive interview Monday. "That should behoove both clients and employees."

"We're thrilled," he added.

The deal will return Sotheby's to private ownership after 31 years as a public company, traded on the New York Stock Exchange under the ticker BID. Sotheby's will be controlled by BidFair USA, a venture owned and controlled by Drahi, who is estimated to be worth $8.6 billion, according to the Bloomberg Billionaires Index.

Sotheby's shares surged nearly 60 percent after the deal was announced. The stock had been down nearly 40 percent over the past year.

"I am making this investment for my family, through my personal holding, with a very long-term perspective," Drahi said in a statement. "There is no capital link with Altice Europe or Altice USA."

Drahi said he does not anticipate any changes to Sotheby's management team, which will continue to operate with his "full support."

Smith said the new corporate structure would allow Sotheby's to continue to invest in modernizing the client experience for the digital age. A "significant" portion of Sotheby's client base is under 40, he noted, and the majority of the assets that go under the hammer sell for less than $10,000.

While the nine-figure Modiglianis and Basquiats generate the headlines, clients are just as likely to come to Sotheby's to bid on everything from vintage cuff links to moon dust, Smith said.

"The global portfolio of demand looks attractive at the moment," he added.

Sotheby's, like other auction houses, has suffered from the ongoing trade war between the U.S. and China. Art and antiques from China are included in the tariffs that President Trump slapped on Chinese imports.

Last year, China surpassed the U.K. to become the second-largest art market in the world behind the United States as its billionaire and millionaire class have become fixtures of the auction scene.

But Smith said the auction industry is resilient and the 275-year-old Sotheby's benefits from an "enduringly powerful business model."

"We will adapt" to the trade war, he said. "We have for centuries."

FULL TRANSCRIPT

Jill Wagner: Joining us now in an exclusive interview is Tad Smith,

Jill Wagner: CEO of Sotheby's.

Jill Wagner: Tad, congratulations.

Tad Smith: Thank you.

Jill Wagner: How did this deal come together?

Tad Smith: Well uh,

Tad Smith: uh we're going to go into the details in the proxy.

Tad Smith: But in general, uh, Patrick, uh,

Tad Smith: approaches and, and made his interests known, and, um,

Tad Smith: he followed a very professional approach

Tad Smith: and the board thought it was a,

Tad Smith: a terrific opportunity for the shareholders and

Tad Smith: frankly for the company going forward. So we're thrilled.

Jill Wagner: What is the expectation in terms of how

Jill Wagner: this is gonna revitalize Sotheby's?

Jill Wagner: We've seen the stock fall

Jill Wagner: almost 40 percent in the past year,

Jill Wagner: although there clearly it's still a market out

Jill Wagner: there for that luxury art space.

Jill Wagner: How does this better your position?

Tad Smith: Well, one of the interesting things about it is

Tad Smith: Sotheby's operating performance has been very strong,

Tad Smith: um, and the stock has not necessarily reflected that.

Tad Smith: So one of the things that we

Tad Smith: thought was really exciting at this point in

Tad Smith: our time is our

Tad Smith: investment program and digital initiatives,

Tad Smith: we thought would be better, uh,

Tad Smith: served in a private environment and, uh,

Tad Smith: and Patrick is a long

Tad Smith: term investor with a long term view,

Tad Smith: and that should be, uh, uh, behoove

Tad Smith: both clients and employees.

Tim Stenovec: Well, Sotheby's has been

Tim Stenovec: a publicly traded company for decades at this point.

Tim Stenovec: What can you do specifically as

Tim Stenovec: a private company that you can't do as a public company?

Tad Smith: Well, you can do lots of things both

Tad Smith: as a public and a private company.

Tad Smith: Um, one of the things that

Tad Smith: a private context with a long term shareholder can do

Tad Smith: is it can invest in different ways and

Tad Smith: shapes potentially than a public company.

Tad Smith: And in this case, uh, the board thought

Tad Smith: that this was a great opportunity for

Tad Smith: our current shareholders to realize

Tad Smith: a return in life perhaps

Tad Smith: and partly in light of what you said.

Tad Smith: But also, uh, thought that it was great for

Tad Smith: the clients and the employees

Tad Smith: going forward. So we're excited about it.

Jill Wagner: Is the client experience gonna change at all?

Tad Smith: The clients experience already has been changing.

Tad Smith: We've been investing very significantly to

Tad Smith: offer both a better event space,

Tad Smith: a phenomenal digital offering, and all of these things.

Tad Smith: I think we're one of the reasons why,

Tad Smith: uh, uh, Patrick was excited about the opportunity.

Tim Stenovec: I'm curious about millennials.

Tim Stenovec: We talk a lot about millennials here on Cheddar.

Tim Stenovec: How do you get millennials

Tim Stenovec: more interested in art? How do you get them [inaudible 00:01:59]?

Tad Smith: Well, it- it's passing a significant portion of, uh,

Tad Smith: the folks who are buying right now from us,

Tad Smith: many of them buy the way online,

Tad Smith: are actually under age 40.

Tad Smith: Um, and so one of the things I'm really

Tad Smith: excited about with our new, uh, um,

Tad Smith: prospective new owner is he

Tad Smith: has a real sense for technology, uh,

Tad Smith: and his family is got

Tad Smith: a real sense for understanding

Tad Smith: how to reach those markets,

Tad Smith: and so we look forward to working with them very closely.

Tim Stenovec: That- that's so interesting for me to hear.

Tim Stenovec: That's not something I was assume-

Tim Stenovec: assuming about the, the company.

Tim Stenovec: I mean, what kind of art are, are,

Tim Stenovec: are people in that demographic are we interested in?

Tad Smith: Well, remember that 60 percent of

Tad Smith: what we sell, this is not a new thing,

Tad Smith: but 60 percent what we sell is under $10,000,

Tad Smith: and so there are all sorts of things you

Tad Smith: can buy. You can buy cufflinks.

Tad Smith: You can buy moon dust.

Tad Smith: You can buy interesting scientific gears.

Tad Smith: You can- there are many, many things we can sell,

Tad Smith: and much of it affordable,

Tad Smith: uh, uh, more affordable to affluent people.

Jill Wagner: How does Sotheby's and the art world adjust to

Jill Wagner: a prolonged trade war

Jill Wagner: that we're seeing a lot of volatility.

Jill Wagner: We know over time foreign buyers have been

Jill Wagner: some of the biggest buyers of art,

Jill Wagner: and also to just questions

Jill Wagner: about economic growth going forward.

Jill Wagner: How do you hedge against that and

Jill Wagner: plan for that at Sotheby's?

Tad Smith: Yeah. Great questions.

Tad Smith: Well- we- let me step back and say

Tad Smith: one of the things that's amazing about

Tad Smith: Sotheby's is it's been around for 275 years.

Tad Smith: Now, part of that, you could hear a sort of,

Tad Smith: uh, a statement about legacy.

Tad Smith: But part of it you should hear is it's

Tad Smith: an enduringly powerful business model.

Tad Smith: It has survived wars,

Tad Smith: plagues, trade wars many, many times over.

Tad Smith: It's the sort of business model that

Tad Smith: is acts as- and sort of

Tad Smith: global presence where it adjusts very frequently.

Tad Smith: It's a very lightweight flexible asset, uh, or, uh,

Tad Smith: asset light model, and

Tad Smith: it's one of the reasons why I think investors,

Tad Smith: uh, such as Patrick appreciate it.

Tad Smith: Um, what that means specifically for trade, uh,

Tad Smith: situation is we will adapt,

Tad Smith: and we have for centuries and we'll continue to adapt.

Jill Wagner: Uh, one of the other things that we've seen

Jill Wagner: impacting this market is hedge funds.

Jill Wagner: Oftentimes, billionaire,

Jill Wagner: hedge fund owners here in United States,

Jill Wagner: big buyers, and investors and

Jill Wagner: [inaudible 00:03:47] over the past several years really since uh,

Jill Wagner: rates have been low, ever

Jill Wagner: since the Fed has driven those rates low,

Jill Wagner: we haven't seen that hedge

Jill Wagner: fund outperformance that we saw

Jill Wagner: per se in the '90s and in the early 2000s.

Jill Wagner: Has that impacted your business?

Jill Wagner: And are there ways to work

Jill Wagner: around that so that it isn't a drag?

Tad Smith: One of the things that's really interesting about

Tad Smith: the most recent sales that we had, uh,

Tad Smith: in New York is that you saw a tremendously, uh, um, uh,

Tad Smith: strong appetite for masterpieces

Tad Smith: for significant quality works of art,

Tad Smith: and the buyer ship was from all over the world.

Tad Smith: So, um, uh while I can't

Tad Smith: say that any particular segment

Tad Smith: of our customers are up or down,

Tad Smith: the global portfolio of demand

Tad Smith: looks attractive at the moment,

Tad Smith: and, uh, we feel good.

Tim Stenovec: What about volatility in

Tim Stenovec: the US markets and i- in public markets around the world?

Tim Stenovec: How does that type of volatility affect assets like art;

Tim Stenovec: like the assets that you sell?

Tad Smith: Well asset, uh, the great thing about art

Tad Smith: is it's a very long term asset,

Tad Smith: and so up and down volatility or,

Tad Smith: or changes to the VIX in the near term shouldn't, uh,

Tad Smith: materially affect it, uh,

Tad Smith: in the sense that it's a long term asset.

Tad Smith: Um, i- in terms of our business, uh,

Tad Smith: short term volatility can

Tad Smith: put a little bit of noise into the system.

Tad Smith: But, uh, the truth is when

Tad Smith: great stuff comes up to market,

Tad Smith: people are taking a long term view just like Patrick.

Jill Wagner: What's gonna be your working relationship with

Jill Wagner: Patrick moving forward when the deal closes?

Tad Smith: Well, Patrick is the owner, and, uh,

Tad Smith: he will make, uh, the decisions

Tad Smith: about what he wants to do at management.

Tad Smith: I can tell you with respect to

Tad Smith: myself and my team, we love our business,

Tad Smith: we're committed to it, and we're committed to,

Tad Smith: uh, uh, serving our clients and getting our job done.

Jill Wagner: Do you anticipate more resources in

Jill Wagner: getting that job done once the deal closes?

Tad Smith: Uh, it's too soon to say.

Tad Smith: Um, and, um, we'll see.

Tad Smith: But I know wha- what I do

Tad Smith: anticipate is that he will bring great strength and

Tad Smith: insight on how to deploy resources to do

Tad Smith: really innovative things per- and

Tad Smith: see things in a way that perhaps we haven't been looking.

Tim Stenovec: Well, um, here's about those innovative things.

Tim Stenovec: What do you anticipate the biggest technological changes

Tim Stenovec: coming to the industry i- in the next few years?

Tad Smith: Well, the three that we've had all- under way already is

Tad Smith: how do we use technology to make

Tad Smith: things really easy to bid?

Tad Smith: How do we make- use technology to make things really

Tad Smith: easy to consign or to sell through us?

Tad Smith: And then how do we think about applications of

Tad Smith: machine learning and other artificial technologies

Tad Smith: to improve our processes?

Tim Stenovec: What about virtual and augmented reality?

Tim Stenovec: Any the idea of, of actually making

Tim Stenovec: these pieces of art available

Tim Stenovec: to people around the world in,

Tim Stenovec: er, er, environment of virtual reality?

Tad Smith: I love that question because on

Tad Smith: June 28th, Friday of this week,

Tad Smith: we're opening the Chatsworth exhibition in New York City,

Tad Smith: and we're going to have an AR component

Tad Smith: of that, and everyone should come see.

Tad Smith: It's free and open to the public.

Jill Wagner: All right. Sotheby's stock up 57 percent, uh, today.

Jill Wagner: It looks like it's trading near

Jill Wagner: its highest level in at least 12 months.

Jill Wagner: Tad Smith, CEO of Sotheby's,

Jill Wagner: congratulations, and thanks for joining us.

Tad Smith: Thank you for having me on Cheddar.

Tad Smith: It's great to be here.

Tim Stenovec: Thanks, Tad.