Sotheby’s is tapping lenders to fund a $300m dividend to its owners, led by businessman Patrick Drahi, after returning to profitability thanks to cost cuts and lay-offs during the pandemic.
The auction house, which Drahi agreed to buy in 2019 for $3.7bn, is planning to raise the cash in a debt sale organised by banks including Goldman Sachs, according to documents reviewed by the Financial Times.
The dividend is the second in six months, coming on top of another debt-funded distribution of $165m in November. Drahi’s BidFair USA owns 94 per cent of Sotheby’s.
With borrowing costs being held low by the US Federal Reserve, there has been a boom in so-called dividend recaps from private equity groups and other owners, who borrow to fund bumper payouts from companies they have acquired.
Sotheby’s has benefited from a recent rebound in the global art market and told potential creditors on Wednesday that it expected to report an adjusted profit between $13m and $15m in the three months to the end of March, compared with a loss in the same quarter last year.
The auction house generated a profit of $39.1m for 2020 overall, compared to a $71.2m loss in 2019, a year that included significant costs related to its sale to Drahi. The company also disclosed that it aggressively cut costs during the pandemic, reporting $98m of savings from lower compensation and lay-offs in its annual report.
Sotheby’s did not immediately respond to a request for comment.
Global art sales fell 22 per cent in 2020 to $50.1bn, according to Art Basel and UBS. The strength of the recovery will be tested this week when Sotheby’s and its rival Christie’s hold their twice yearly impressionist and modern art sales.
The auctions offer one of the best measures of demand for trophy works, and are among the only sales that are visible to the public.
Among the star lots of Sotheby’s Wednesday sale is Claude Monet’s painting “Water Lily Pond”, which the artist crafted between 1917 and 1919 and which has changed hands several times, including at Sotheby’s in 2004. The auction house is hoping to fetch $40m or more for the work.
Drahi, a telecoms industry dealmaker, who was born in Morocco and holds French, Israeli and Portuguese citizenship, is known for his use of debt to structure complex deals, including the acquisition of Sotheby’s.
Analysts at rating agency S&P Global characterised the November dividend by Sotheby’s as an example of the “aggressive financial policy” by which it operates.
It was not yet clear what interest rate the company would have to pay to on its planned $300m bond. Calls with potential lenders were being held on Wednesday afternoon to gauge demand.