Sotheby’s International Realty in Financial Difficulty

Sotheby's Auction House in Financial Difficulty

If you thought the real estate bubble was bad, spare a thought for the even-more deflated art bubble. World famous auction house, Sotheby’s, and by extension, Sotheby’s International Realty, would seem to be in some financial difficulties at the moment. The current situation has more to do with declining art “values,” and unrealistic guaranteed prices, than anything else. Sotheby’s share price has fallen dramatically over the last three months, and is currently trading at around $8, down from a high of over $56.

The firm has just borrowed another $250 million, pushing the edges of their $300 million credit facility, bringing their total debt up to around $620 million, and has just filed an 8-K with the SEC stating they have lost another $15 million after recent sales in London and Hong Kong failed to reach guaranteed levels. Adding to the problem, their accounts receivable now top $1.6 billion, and they stand a very good chance of being unable to collect at least a portion of this. Much of this debt is owed by Russian “billionaires,” no longer in a position to pay.

Auctions being held today and tomorrow in London and New York, expose the firm to another spate of potential losses if prices remain depressed and do not reach guaranteed levels. One painting by Picasso, “Arlequin,” which was expected to sell for $30 million when the auction was arranged, has already been withdrawn. A Sotheby’s representative stated that the painting had been withdrawn for “private reasons.”

This is unlikely to have any impact on realty associates, other than perhaps waking up to discover a new owner sometime soon. It is difficult to judge at exactly what point Sotheby’s becomes a potential take over target, because the one difficult-to-value asset they own is their brand name, but if the share price drops much lower, I would hazard a guess they will become an attractive trophy purchase.

Sotheby’s 8-K Filing