S&P Global Ratings said the additional borrowing will help drive leverage to 6.6 times Ebitda after the acquisition from 4 times previously, informing its one notch cut in the company’s grade to B+. Sotheby’s now carries an extra $1.1bn of debt raised through a loan and a bond to pay for the purchase. These worries stem from Drahi’s approach to financing the acquisition and his move to introduce complexity into Sotheby’s structure, both of which are typical of his modus operandi. The question of whether the broader planned cost cuts materialise plays into investors’ and credit rating companies’ concerns about leverage. However, it remains to be seen how much, if any, of these funds resurface as another form of compensation. Eliminating stock payments is to be expected, given the company’s new private status. A big portion of that - some $31mn - reflects the end of share-based compensation. After he bought Cablevision Systems Corp in a $17.7bn deal the same year, he said he prefers to shell out “as little as I can.”ĭrahi could avoid deep cuts at Sotheby’s and still have some wiggle room to reduce pay.Īccording to a presentation given to potential buyers of bonds to finance the acquisition that was seen by Bloomberg, Drahi plans to achieve $66mn in cost savings at the auction house, amounting to about 43% of adjusted earnings before interest, taxation, depreciation and amortisation in the second quarter. Drahi has also made clear his views on salaries. Revenue is now growing, though the parent company is burdened by a mountain of debt. About a third of the workforce has been cut. He bought French carrier SFR for more than €17bn ($19bn) in 2014 and pledged to preserve jobs.
The 56-year-old has certainly made an impression on that industry. Apart from offering a way to ensure his legacy, the purchase will help diversify Drahi’s fortune away from the communications assets that dominate his holdings. Though the French-Israeli tycoon turned a $9,000 student loan into $12bn over the course of his career, he had never made much of a mark on the art world, so his run at Sotheby’s caught the community by surprise. Spokesmen for Sotheby’s and Drahi declined to comment. “Auction houses typically take years to establish long-lasting bonds with families that have art works to sell and families that could be buyers. For example, halving staff would be unthinkable, he said. “It’s obvious that you don’t manage an auction house the way you manage a telecom carrier,” said Frederic Ichay, a telecom and technology M&A lawyer based in Paris. But for the business to thrive over the long term, Drahi may need to stand by his pledge to workers, and pursue a different playbook than the one he’s used to build his business empire. The company expects the month’s sales to bring in about a quarter less than a year ago. The announcement on Monday that Charles Stewart would become chief executive officer of Sotheby’s is a prime example of the last tactic, given his role as chief financial officer at Altice USA Inc, a telecom company controlled by Drahi.Īs Sotheby’s prepares to kick off its November auctions with an Impressionist and modern art sale that will feature Claude Monet’s “Charing Cross Bridge,” its new owner faces an important test. This doesn’t sound quite like the Patrick Drahi who earned his fortune from debt-fuelled takeovers of at-risk communications companies, imposing deep cost cuts, layoffs, asset sales and complicated borrowing structures, all while filling key roles with trusted lieutenants.
The mood of continuity was also evident in his pitch to financiers for his purchase of the auction house, as they were told that his plan is “to maintain the current, well-performing strategy of the business.” However, job losses were not, according to two people who attended the meeting.
The day before, he had told a packed employee town hall in the seventh-floor auction room at the company’s New York headquarters that significant cost cuts were on the way.
CLAUDE TAD SMITH FULL
“You have my full commitment and competence as we look to enhance Sotheby’s for the next 275 years and beyond.” “With my family, we are very honoured and proud to assume the long-term ownership of Sotheby’s,” he said in the October 3 note. The morning French billionaire Patrick Drahi took control of Sotheby’s he e-mailed staff at the 275-year-old auction house with a message of stability.
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