Outlook: Why Christie's is better off privately owned

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The Independent Online
Auction houses have never had a particularly comfortable existence as publicly quoted companies. Their earnings are cyclical and unpredictable, and their main asset - their experts - tend to be people of fragile ego and a willingness to walk at the slightest prompting. Moreover, the business has changed in a way which makes the generally quite inflexible capital resources of a publicly quoted company inappropriate to the task of selling fine art.

So it is hardly surprising that both Christie's, and to a lesser extent Sotheby's, should find themselves in play right now. Both are in truth probably much more suited to private ownership than the publicly quoted sector. Surprisingly, the most important reason for this is not the one most often cited - that rich people are prone to aspire to such businesses because of vanity.

These days, the big vendors expect to have their collections underwritten, they expect the auction house's valuation to be guaranteed when the collection is put up for sale, so that they achieve the reserve even if it is not reached. Few publicly quoted companies can justify taking such risks with their shareholders' money, and indeed Sotheby's recently lost a packet on such a transaction. Even in today's sophisticated financial markets, it would be difficult to underwrite these things on a case by case basis.

Obviously, the auction house in a position to guarantee the vendor is much better placed to win the business. Returns from auctioneering could thus theoretically be greatly enhanced in the hands of those with access to limitless capital. Christie's has admitted to on off, and now on again, talks with a mystery predator. We still don't know who it is, but it seems likely that the above is what this is all about.

Christie's has hired Merrill Lynch alongside its traditional merchant bank adviser, Hambros - presumably with the intention of bolstering its defences or finding an alternative. It may be too late for that. The question is no longer about whether Christie's remains an independent, publicly quoted company. Rather it is about the price at which the company goes private. Given the bind it finds itself in, that's unlikely to be much of a premium.

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