What can HK$1.8 billion buy? Maybe several large diamonds, a couple of rare paintings in Sotheby’s auctions, or a stake in the world’s top auction house itself, which is what mainland insurer Taikang Life Insurance Co did.
Run by Chen Dongsheng, the grandson-in-law of Mao Zedong, Taikang has recently built up a 13.5 percent stake in Sotheby’s at an estimated cost of US$230 million, or about HK$1.8 billion.
Taikang is now the biggest shareholder of Sotheby’s.
The auction house’s board had met with Taikang’s executives and “warmly welcome their support of Sotheby’s strategic initiatives”.
The deal appears to be mutually beneficial. Taikang can leverage on Sotheby’s 272-year-old track record and expand into the international market, while Sotheby’s stand a better chance to beat its arch rival Christie’s in the mainland market.
Together with Anbang Insurance and Qianhai Life Insurance, Taikang is considered one of China’s top fast-rising private insurers.
All of them have been aggressively snapping up assets both at home and abroad.
As the eighth largest insurer in the country, Taikang has over 830 billion yuan (US$125 billion) in assets under management and the firm reported premium income in excess of 78.1 billion yuan last year.
Compared with its fast-growing new shareholder, Sotheby’s has been suffering from intense competition and lackluster economic growth in Europe and the United States.
Its auction turnover dropped 3 percent to US$5.02 billion last year from the previous year. Net profit slumped 63 percent to US$43.7 million during the period and is expected to decline further to US$30 million this year.
Taikang’s purchase boosted the market value of Sotheby’s to the current level of US$2.2 billion, almost double the level before Taikang started to accumulate its shares.
Taikang now owns 7.92 million shares or 13.5 percent of Sotheby’s, making it the largest shareholder.
The second to the sixth biggest shareholders are all fund management firms, with stakes ranging from 5 to 11 percent.
Cheng is also the founder of China Guardian Auctions Co. Ltd., the nation’s second-largest auction house specializing in Chinese antiques and calligraphy.
Guardian actually owns 24 percent of Taikang, so the deal can also be viewed as Guardian’s indirect investment in Sotheby’s.
In China’ auction market, Poly Culture is the top player (03636.HK), which reported auction revenue of 8.7 billion yuan last year.
Guardian is in second place with revenue of 4.5 billion yuan.
Both Sotheby’s and Christie’s have failed to make significant inroads in China as they lack the network to attract domestic buyers and get consignments from collection owners.
Still, Poly and Guardian need to tap into the global market and explore the high-end market.
It might take a long time if they try to build up reputation and expertise by themselves. Acquiring a global auction house is a short cut, which is precisely what Guardian is doing now.
So HK$1.8 billion is quite a bargain.
Given that the deal has been applauded by Sotheby’s management and both sides have reached a consensus on future corporate strategies, it’s quite possible that Taikang may further boost its stake in Sotheby’s, especially when other shareholders are all financial investors and none of them have a major stake.
It’s quite ironic that the Cultural Revolution started by Mao Zedong was a nightmare for Chinese arts and culture.
However, his grandson-in-law now runs the nation’s second-largest auction house, and may one day control the world’s largest auction house.
This article appeared in the Hong Kong Economic Journal on Aug. 15.
Translation by Julie Zhu with additional reporting
[Chinese version 中文版]
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