Abu Dhabi’s ADQ buys stake in Sotheby’s

Abu Dhabi-based sovereign wealth fund ADQ is to take a stake in Sotheby’s as part of a $1bn capital injection alongside existing owner Patrick Drahi as the auction house seeks to cut debt and fund growth.

ADQ and Sotheby’s said in a joint statement on Friday that the investment fund had “signed a definitive agreement” to buy a minority stake via newly issued shares.

The cash will be used to “reduce leverage and support the company’s growth and innovation plans,” they said, adding that Drahi would also put in additional money and remain Sotheby’s majority owner. The parties did not provide a valuation for the company.

Drahi acquired Sotheby’s in 2019 in a deal that valued the auction house at $3.7bn, including debt. That the Franco-Israeli entrepreneur is now willing to accept a partner represents a change in position from what people close to him said in December, namely that he did not need to sell nor bring in outside investors.

The bulk of Drahi’s holdings are in telecoms and owned by his Altice group, although Sotheby’s sits in his personal holding company.

In June, S&P Global Ratings cut the auction house’s credit rating to B minus from B, citing “pressured profitability and continued Ebitda decline.” The agency highlighted “potential refinancing risk” given Sotheby’s “elevated leverage.”

Sotheby’s parent company Bidfair had $3.5bn in long-term debt at the end of last year, according to corporate filings in Luxembourg.

The deal with ADQ is expected to close before the end of the year. The fund’s involvement is a reflection of how many rich buyers of artwork and collectors’ items increasingly hail from the oil-rich Gulf states.

Founded in 2018, the sovereign wealth fund is tasked with fuelling development in the oil-rich emirate of Abu Dhabi. Chaired by the UAE’s powerful national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, ADQ also invests abroad, and earlier this year announced $35bn investment plans in Egypt.

The Sotheby’s stake falls outside ADQ’s priority sectors, which span energy to agriculture, healthcare and logistics. However, a person close to the fund said it could lead to a Sotheby’s opening in Abu Dhabi, which has invested heavily in bringing art and culture to the emirate. The Louvre Abu Dhabi opened in 2017, and construction on a Guggenheim gallery has begun.

Drahi has been selling off assets lately as a wall of debt starts looms. His holding company Altice was built during an acquisition spree starting around 2014 that splashed out about €50bn and was partly funded with cheap borrowing. It expanded to include US cable companies, French telecom operator SFR, and other smaller communications groups from Portugal to Israel.

His deals often used creative financing methods and leverage: the purchase of a 24.5 per cent stake in BT was built through substantial loans and derivatives financing, allowing Altice to borrow heavily against the shares, according to people familiar with the situation and loan documents seen by the Financial Times.

In November, Altice struck a deal to sell a majority stake in its data centre business in France, valued at €764mn, to a Morgan Stanley infrastructure fund. 

In March, Drahi agreed to sell French 24-hour news channel BFM and RMC radio to Rodolphe Saadé, the billionaire owner of CMA-CGM shipping group, for €1.55bn in cash. This month, Altice sold an online video advertising group called Teads to digital marketing group Outbrain for about $1bn.

Other assets like Portugal Telecom have been on the block for more than a year, but have not found buyers. In Portugal, Altice was rocked by a corruption probe in which one of Drahi’s long-standing lieutenants was alleged to have embezzled money through procurement contracts.

The company has said it did not know of the problems, and is co-operating with prosecutors.

In 2023, Sotheby’s parent company based in Luxembourg reported interest expenses of $267mn, from $218mn the previous year.

Revenue fell to $1.36bn in 2023 from $1.4bn the previous year because of lower auction services revenues and a decline in inventory sales.

Additional reporting by Rob Smith in London