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  • Writer's pictureJeff Matthews

The $14.9 Million Small Pheasant Vase

I don’t know too much about Sotheby’s, the old-line auction house—save that its sales peaked during the 1999 bubble year and dropped four straight years; its CEO went to jail for conspiring with Christie’s to fix the market, and after a few years out of the headlines the company has rebounded along with the art market, which appears to be on fire.

So I found the recent earnings call interesting, both from a Sotheby’s-specific point of view, as well as the company’s own world view from the vantage point of its auction business.

Most interesting was the company’s commentary on the exploding international art markets, particularly in Russia.

Now, I am not suggesting Sotheby’s is a good “Russia Play,” or “China Play,” or any other kind of play.

But I find it intriguing that Ariel Capital, a firm whose long-term point of view and concentrated investment style I admire, now owns 15% of Sotheby’s common. I find it intriguing that there were precisely four analysts on the recent earnings call—and none of them from large investment houses. And I find it intriguing that the company stands to benefit from the rise of China, the flow of oil money coming out of the ground in Russia, and emerging-market trends elsewhere around the globe.

And I thought management’s commentary regarding the state the business and its view of the world to be sound—and worth sharing.

Bill Ruprecht, Sotheby’s – President, CEO A couple of comments, just on the fourth quarter and the business — we’ve had exceptional sales so far in the fourth quarter. As I already indicated, our Impressionist and Modern Art sale last week in New York achieved results above our expectations…. The evening sale topped its high estimate and that’s the first time that’s happened with us since 1990. The higher items of sale was a Pablo Picasso preliminary drawing for the Women of Avignon, which sold for $13.7 million, which was triple its presale estimate of 3 to $6 million. We had Hong Kong sales last month which were really superb. Sales totaled almost $110 million, which was the highest total in our 31-year history in Hong Kong, demonstrating remarkable strength and depth of interest in that marketplace. We achieved, in that period, the highest price ever paid at auction in Asia for a work of art; it was the sale of a small pheasant vase, which sold for $14.9 million. A couple of unique single-owner sales which recently took place, one in Germany, where we sold works belonging to the Royal House of Hanover, took place over nine days at the Marienburg Castle in Germany. We sold over $50 million, more than triple its pre-sale estimate of $16 million. Last week at the same time as our Impressionist series, we had the sale of more than 600 items from the collection of Lily and Edmond J. Safra. That sale achieved $49 million, above its pre-sale estimate of $26 million, for really wonderful French/Continental/English furniture, clocks, porcelain paintings, carpets, Faberge, Russian works of art; it was a terrific sale. George Sutton, Craig-Hallum Capital – Analyst Okay, last question, more specific to the strong Chinese and Russian markets — can you give us any sense of expansion plans you might have there, either geographically or just through additional people?

Bill Ruprecht, Sotheby’s – President, CEO

I think that the two marketplaces, frankly, could not be more different. As you probably know, there’s an extraordinary concentration of wealth in Russia among a relatively small group of people. We’ve got very effective representation in Russia as well as in London and in New York, working closely with a large group of clients in that marketplace.

I would say that it feels to us as if we are serving that market well, having sold somewhere in the neighborhood of $300 million worth of Russian works of art in the last several years versus our traditional competitors having sold less than 100. So, we’ve got a bead and an intimacy on that marketplace that we like without a lot of fixed localized costs in Moscow, which I do not believe is the best way to serve that market.

In China, it’s a fascinating marketplace, of course. There’s a domestic PRC marketplace and then there’s a Hong Kong marketplace, both sort of pan-Asian sales. Our trading environment historically has of course been in Hong Kong, welcoming buyers both from the mainland China marketplace as well as from the rest of the world. I think it’s fair to say that the ceramics marketplace out there, which is a significant portion of the marketplace, is a very international market with many collectors inside the PRC but many collectors outside, spread throughout the world, in the States as well as in Europe.

This is a long-winded answer to say that, on the other hand, there’s a very, very robust market inside the PRC for paintings and in particular modern paintings….

I think we’re looking at it very carefully. I think we believe there’s a role for us in the PRC marketplace, but we don’t have any appetite to lunge into anything and create a bunch of enemies in the process.

Informed opinions and observations are welcome.

Jeff Matthews I Am Not Making This Up © 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

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