The major Chinese insurance company now holds largest stake in the international auction house.
Taikang Life issued the announcement on 27 July 2016, disclosing its new active stake of 13.52 percent in Sotheby’s and the possibility of seeking board representation in the near future.
As reported across various media outlets, the fourth largest insurance company in China, Taikang Life Insurance Co., now holds the highest active stake in the major auction house Sotheby’s.
Sotheby’s already has two US activist shareholders among its top investors, including Dan Loeb, Founder and Chief Executive of Third Point LLC, a New York-based hedge fund with 11.4 percent, and Marcato Capital Management, the activist hedge fund run by Mick McGuire, with an active 9.7 percent stake. Third Point was the largest shareholder until the recent announcement by Taikang Life.
With the insurance company, Sotheby’s now has two influential Asian owners among its top shareholders. The other is Singapore’s Shanda Payment Holdings Ltd., which owns two percent of the auction house and recently received US antitrust approval from the FTC (Federal Tade Commission) that allows them to purchase more shares.
According to Bloomberg, Sotheby’s has a market capitalisation of USD1.84 billion USD, and 11.4 million of its 58.6 million shares are sold short:
Short sellers aim to profit from a declining stock by borrowing shares, selling them and then buying them back at a lower price.
Taikang Life says it paid USD230 million USD for 8 million shares in Sotheby’s on the open market during June and July 2016. The insurance company has net assets of RMB33 billion (approx. USD5 billion) and was founded by Chen Dongsheng, who is married to Mao Zedong’s granddaughter. Chen Dongsheng (b. 1957), Chairman and CEO of Taikang Life, is also the founder (in 1993) and president since 1996 of the second largest auction house in China, China Guardian, and is Deputy Chairman of China Auction Association (CAA).
A WSJ article reveals that Chen wrote in his book Magic Gavel: 20 Years with Guardian (2014) that not only did he videotape the first auction he attended at Sotheby’s but he also spent time taking notes of everything, “learning and copying all the details of Sotheby’s”, which would be useful for his own business development plans at China Guardian.
The country’s fine art auction sales have risen three-fold in the last eight years, as WSJ reports, from USD1.6 billion in 2008 to nearly USD4.9 billion last year, according to a report by Artprice, and China Guardian has reaped its benefits from this exponential growth.
Chen mixes his duplicitous interest in art and insurance, displaying traditional Chinese calligraphy and paintings in the insurance company offices, and hosting exhibitions of contemporary art in its headquarters. The insurer also runs a prominent non-profit art space in northern Beijing called Taikang Space, founded in 2003.
A globalising move in the art market
Chen’s move to acquire the largest stake in Sotheby’s is a clear indication of “the globalisation of the market”, says Thomas Galbraith, an art market consultant at the New York-based advisory firm Petraeus Group, quoted on The New York Times. It could also explain Chen’s ambitions to have a powerful international ally for his own auction house in China. Sotheby’s would also benfit from having a local company at its side, after having been beaten on the Chinese market by Christie’s who became the first international auction house to have license to operate independently on Chinese soil.
As WSJ reports, Taikang Life “wants to influence Sotheby’s strategic direction”, saying in a regulatory filing that “it wants a seat on Sotheby’s board”. Sotheby’s Chief Executive Tad Smith said in a statement that the auction house’s board had met with Taikang’s executives and “warmly welcome their support of Sotheby’s strategic initiatives” and expects “all shareholders, clients, and staff will benefit” from the move.
At the same time, as Ma Xuedong, Director of Art Market Research Center in Beijing quoted in the same article, said, Sotheby’s stake purchase would help China Guardian get Sotheby’s client resources:
The most important thing is Sotheby’s brand effect, and they [China Guardian] could learn a lot from Sotheby’s.
While Christie’s strategically surpassed Sotheyby’s in China, local state-backed auction house Poly Auction surged ahead of its rivals at home, registering a 19.1 percent increase from 2014 compared to China Guardian’s decrease of 5.6 percent. Art market consultant Galbraith, quoted by the New York Times, says:
Sotheby’s lost the battle to enter the Chinese market, objectively quite badly. But this may help them win the war. Whereas China Guardian has fallen behind Poly in their international presence, and this deal changes that dynamic overnight.
C. A. Xuan Mai Ardia
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