IN A career defined by audacious takeovers, Patrick Drahi’s bid for Sotheby’s ranks as perhaps the most surprising of all.

The French-Israeli tycoon has long followed his own path in business, tapping the market for junk-rated debt to help build the second-biggest telecom company in France. And Drahi shunned the elite bastions of Paris by listing Altice Europe NV in Amsterdam and settling in the alpine town of Zermatt, Switzerland.

When this consummate outsider announced on June 17 that he would shell out $2.7 billion to purchase Sotheby’s, the iconic 275-year-old auction house, a raft of questions followed. Is he seeking a trophy asset to sit on his shelf, or will he shake up a firm that had seen its share price tumble by 40% in a year? Is it wise to pile more debt onto Sotheby’s? And just who is Drahi anyway?

One thing is already clear: the bid opens a new chapter for an entrepreneur who turned a $9,000 student loan into an $8.5 billion fortune, making him the sixth-richest person in France, according to the Bloomberg Billionaires Index.

It’s also possible that other bidders could challenge Drahi’s offer, which was set at a 61% premium to Sotheby’s closing share price on June 14. On Friday, the New York Post reported that other potential buyers may be circling, which pushed the firm’s stock above the offering price. If Sotheby’s accepted a rival bid, it would have to pay Drahi a termination fee of almost $111 million, according to a regulatory filing.

SOTHEBY’S MAY GET OTHER OFFERS AFTER DRAHI
In any event, Drahi, 55, said little about his reason for the acquisition in Monday’s statement, save that he’s long been a client and admirer of Sotheby’s. He declined to be interviewed for this article.

Arthur Dreyfuss, a spokesman for Drahi, said the purchase “is a long-term family investment in an industry he is passionate about.”

ART LOVER?
The bid roiled the art world and sent dealers scrambling for information about the man, who wasn’t widely known as a serious collector. Experts steeped in the ebb and flow of the market were hard-pressed to identify what paintings he’s bought, although a person with knowledge of Drahi’s collection said he owns pieces by Picasso, Matisse, and Chagall, as well as works by 19th century French masters Gericault and Delacroix.

Born in Casablanca, Drahi moved to southern France from Morocco when he was 15. He attended his first art auction around then, though at that age he could only observe. That changed by 2007, the year he cobbled together regional cable operators into a new company called Numericable. Drahi likes to steal an hour or two while on business trips and visit local galleries and cathedrals, as he did on a recent detour to the Louvre’s outpost in the northern French city of Lens, said the person, who asked not to be identified.

‘INSTANT FAME’
Taking Sotheby’s private after 31 years on the New York Stock Exchange will certainly make Drahi an influential figure in the market for fine art and collectibles, which amounted to $67.4 billion last year, according to an annual report published by UBS Group AG and Art Basel.

He will stand opposite Francois Pinault, the French billionaire who founded a luxury-goods empire that encompasses names like Gucci and St. Laurent and controls Christie’s, Sotheby’s historic rival. In acquiring Sotheby’s, Drahi would mirror A. Alfred Taubman, the late American shopping mall developer, who scooped up Sotheby’s in 1983 and took it private.

“People didn’t know Alfred incredibly well at the time, but it gave him instant fame in the art and cultural world,” says Warren Weitman, a former Sotheby’s executive and co-founder of Art Market Advisors in New York.

Owning Sotheby’s would give Drahi a first look at pieces coming onto the market, plus a ready outlet for selling his own works, industry experts said. Taubman bought sculptures by Alberto Giacometti and paintings by Georgia O’Keeffe and Picasso, among others, at auctions, and by the time of his death in 2015 he’d amassed a collection once valued at $500 million. (The businessman was convicted of price fixing in an industry-shaking trial in 2001 and served almost 10 months in prison).

‘COVETED WORKS’
For his part, Pinault is among the world’s top collectors with works from virtually every major modern, postwar, and contemporary artist. His $1.2 billion collection is so vast that he exhibits pieces in two palazzos in Venice and is building a museum in Paris.

“I am sure the idea of access to the most coveted works before anyone else is an additional perk to this acquisition in the back of Drahi’s mind, as must have been the case with an obsessive collector like Mr. Pinault,” says Wendy Goldsmith, founder of Goldsmith Art Advisory, a London-based consulting firm.

Yet Drahi will be on the hook should the finances of his new acquisition go sideways. Buffeted by sudden swings in buying activity, the art world can be a volatile and inscrutable place. In 2016, for instance, sales in China slid sharply and contributed to a 16% drop in revenue at Sotheby’s, says Alex Maroccia, an equity analyst with Berenberg Capital Markets in London.

MOODY’S REVIEW
Despite the astronomical sums paid for top works — Claude Monet’s ethereal rendering of haystacks called Meules fetched $110.7 million at Sotheby’s in May — the company has struggled to post consistent growth. In 2018, the firm, which makes money primarily by sales commissions, earned $108.6 million in net income on $1 billion in revenue, an 8.5% skid from 2017. In the first quarter of this year, it lost $7 million.

On Tuesday last week, Moody’s said Sotheby’s adjusted debt was five times its earnings before interest, tax, depreciation and amortization — a high level for a luxury-goods concern. Moody’s, which already ranks Sotheby’s debt at below investment grade, placed the firm on review for a credit-rating downgrade. Drahi may be planning on financing a big chunk of his deal by selling more junk-rated debt.

HIGH TECH SHAKEUP?
Drahi, a graduate of France’s elite engineering school, Ecole Polytechnique, may be tempted to bring his technological expertise to bear. Sotheby’s mobile-phone app already permits users to bid around the clock in online auctions of fine books and manuscripts or 19th century European paintings. Last year, the firm bought a New York startup called Thread Genius that uses “image recognition” software to ply users with art they may like based on past purchases. It’s widely accepted that the art market is long overdue for the type of digital revolution that transformed other industries.

But if Drahi is contemplating using digital automation to slash salaries, Sotheby’s biggest expense, he may want to think again, experts said. The auction business is still driven by the relationships between sales representatives who know what art buyers want and well-heeled customers who require hand-holding and trust.

“Patrick Drahi may have some wiggle room to cut costs, but not massive wiggle room,” says Franck Prazan, the owner of Applicat-Prazan gallery in Paris.

More than anything, the art world is bracing to see how Drahi, the newcomer, will square off against the veteran Pinault. Locked in a fierce rivalry, Christie’s and Sotheby’s control about 20% of the global art market, according to the UBS report. Christie’s had $7 billion in sales last year, compared with $6.4 billion at Sotheby’s.

Whatever course Drahi takes, there’s bound to be drama as Sotheby’s rejoins Christie’s in the opaque world of private ownership and a new player makes his imprint on an idiosyncratic industry.

“Every successful businessman who gets involved with the auction houses thinks that he can reinvent the wheel,” says Goldsmith, the art adviser. “Mr. Drahi may indeed find that he can’t reinvent the wheel, but he will have a lot of fun trying.” — Bloomberg

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