TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/112789/11278900.014

Text File | 1990-09-19 | 11KB | 200 lines

ART, Page 66

The Anatomy of a Deal

How Alan Bond bought a $53.9 million painting, with more than a

little help

By Robert Hughes


    In late 1987 the name of Alan Bond was riding very high in
America, and in Australia he was a hero. "Bondy," as his country
called him, was the prime mover in the syndicate that funded the
design, construction and testing of Australia II, the 12-meter
sloop with the controversial winged keel that swept to victory over
the U.S. defender off Newport in 1983, leaving, for the first time
in yachting history, an empty plinth in the New York Yacht Club
where the America's Cup used to stand.

    A high school dropout who emigrated from England as a boy, Bond
had come up the hard way, fueled by an insatiable drive to acquire,
combine, take over. At 49 he was one of the richest men in
Australia. He controlled an empire of assets under the umbrella of
his holding company, Bond Corporation Holdings Ltd.: television
stations, retailing, minerals and breweries around the world. He
had even figured out a way of selling nonalcoholic beer to Muslims
in the Middle East. Everything about him was on a large scale --
his ambitions, his capacity for risk, his appetite for publicity.
Also, he had some Australian paintings. But he did not own an art
collection that would cut ice outside his home city of Perth.

    Like many another entrepreneur, Bond had never given much
thought to art until he got rich. "This Pie-casso, now," he asked
an Australian museum man over dinner in Sydney in the early 1980s,
"is he worth having?" But a major impressionist collection was what
Bond hankered after. He knew this could not possibly come cheap.
He didn't care. He was, in short, a dealer's dream: Billionaris
ignorans, a species now almost extinct in the U.S. but preserved
(along with other ancient life-forms) in the Antipodes.

    Above all, he wanted a Van Gogh. In 1987 he was the underbidder
on Sunflowers, which fetched a record $39.9 million at Christie's
in London. Then, as underbidder again, he just missed The Bridge
at Trinquetaille, which sold for $20.2 million, also at Christie's,
a few months later. So when he learned that Irises was coming up
at Sotheby's in New York City in November of the same year, he
decided to go the limit.

    Irises was owned by John Whitney Payson, who had lent it to a
small university museum in Maine. But with the news of Sunflowers'
sale for $39.9 million -- and with little tax relief in sight if
he gave it to a museum -- he decided to sell it through Sotheby's,
which cautiously predicted a price between $20 million and $40
million and went to tell Bond the glad news. Sotheby's did not need
to cast a delicate fly over Bond and strip it softly in. The fish
was already halfway over the gunwale and champing eagerly at the
gas tank.

    Bond arranged with the financial services division of Sotheby's
for an open-ended bridging loan of half the hammer price, whatever
that would be. The other half he borrowed from an Australian bank.

    On the night of the auction, an agent for Bond in New York City
placed his bids by telephone. Irises, according to observers, quite
quickly went up to $40 million. After a slight lull, the contest
resumed between two telephones, whose disembodied bids were relayed
to auctioneer John Marion. Moments later, Irises was hammered down
to an anonymous bidder at $49 million -- $53.9 million counting the
10% buyer's commission. The name of the underbidder on the other
phone has never been divulged. A year went by before it was
announced that Bond was the new owner of Irises.

    Irises, it seemed at the time, was the picture that saved the
art market after Black Monday -- Oct. 19, 1987 -- when Wall Street
plunged 508 points. Actually, the market was running quite high
between the crash and the sale of Irises, but the painting was
greeted as a talisman. Bond beefed up the security arrangements on
the top floor of his headquarters in Perth to fortress strength and
unveiled his acquisition -- the only Van Gogh in Australia -- to
the press. "This isn't just a great painting!" he exulted to the
cameras. "It's the greatest painting in the world."

    But if the ar-t market was going like the Wabash Cannon Ball
through 1988 and 1989, Bond's own finances were not. His bid for
Irises had been part of a consistent pattern: paying far too much
for investments even though they were, as assets, sound. In 1987
he paid more than $700 million for Kerry Packer's TV stations in
Australia. In the financial year ending last June, Bond's media
firm posted a $34 million loss. Also in 1987, Bond paid more than
$1 billion for the U.S. brewery G. Heileman, whose 1989 resale
value is about half that.

    By the end of 1988, Bond was trying to shift more than $9
billion in debt. When payment on Sotheby's bridging loan of $27
million fell due, he could not meet it, and Sotheby's rolled it
over for another year.

    The auction house had no choice. It had punctually paid John
Payson the full sale amount, $49 million, and now the exposure of
the buyer's inability to pay for the painting would have been
horrendous. Although the firm could have repossessed Irises and put
it on the block again, such a move would almost certainly have been
a disaster. It might have brought $30 million, maybe $35 million,
according to informed sources -- a fire sale. And the results for
the art market if the World's Most Expensive Picture lost a third
of its value in a year did not bear thinking about. "The last thing
in the world we want," a senior Sotheby's executive remarked to
Edmund Capon, director of the Art Gallery of New South Wales, "is
for that f------ picture to come back on the market."

    Meanwhile, rumors about Bond's delay in paying up were
spreading through financial circles. Last January an Australian
finance company approached an auction house in London with the
utterly novel idea of packaging an option on Irises, in the event
that Dallhold Investments -- the holding company through which Bond
owned the picture -- defaulted. The auction house rejected this
proposal. In late 1988 Bond himself reportedly tried to pass off
Irises to the New York megadeveloper Donald Trump as partial
payment on a $180 million deal for the St. Moritz Hotel. Trump, no
collector, said the painting was worth only $30 million and turned
him down.

    Early in 1989 Bond arranged to send the Van Gogh and five minor
impressionist paintings he owned, packaged as "Irises and Five
Masterpieces," on a tour of Australian museums, finishing at the
Art Gallery of Western Australia in Perth. Irises was set in a
double-glazed frame that ensured no one could touch or even closely
inspect its surface -- which made some skeptical Aussies suspect
it was an exact copy commissioned, for security reasons, by
Sotheby's.

    Soon after the paintings went on display in Perth, curious
anomalies arose. Sotheby's suggested to the Art Gallery that Irises
might remain on view there for some weeks after the exhibition
ended. The trustees of the museum wanted to be sure they would not
be held liable for possible damage to Irises; there had already
been demonstrations outside, protesting Bond's investments in
Chile. The trustees called in government lawyers to check on the
insurance of the Van Gogh.

    The lawyers reported that they could not be sure, based on the
papers shown them, who owned it. It seemed to be owned jointly
owned by Dallhold, Sotheby's and two Hong Kong corporations. (This
conflicts with Sotheby's insistence that it had, and has, no
ownership of any kind in Irises, only a lien on the painting.) And
on checking the insurance, the lawyers found that no premium had
been paid and that the English insurers considered themselves not
liable for Irises. Asked about this, Sotheby's CEO Michael Ainslie
says, "That is news to me. It was certainly in force according to
our communication with the insurers."

    So the Van Gogh was sent for safekeeping to an undisclosed
place -- probably in Switzerland. Sotheby's insists that though it
has "control" of Irises, Bond still "owns" it. The firm denies any
knowledge of the Hong Kong companies.

    Last month Sotheby's $27 million loan to Bond, which up to then
had been a closely guarded secret, was disclosed by Bond's own
company. How much has been repaid? Sotheby's won't say; a spokesman
for Dallhold soothingly announced that "all is in order" and only
"10% to 25% of the picture price" (between $5.4 million and $13
million) remained to be paid. The balance would be satisfied by the
sale of Bond's Manet, La Promenade, at Sotheby's last week.

    Banking sources in Australia say Bond only regained title to
this Manet in the nick of time. He had bought it at Christie's in
1983 for $3.96 million and transferred ownership to the Sydney
branch of Chemical Bank. Chemical then leased it back to Bond. Why
this maneuver? Because, says a bank source who analyzed the lease
after it was issued, Bond had found a tax loophole. Under
Australian tax law, you could lease any asset -- say, a tractor --
from its owner and get a tax deduction for all payments of
principal and interest, as long as you had no right to the asset
at the end of the term. (The law, needless to say, was framed to
help undercapitalized businesses that cannot afford new tractors,
not financiers who want to turn a Manet into a tax loss.) Bond had
the Manet from Chemical on such an operating lease and got tax
write-offs on it that may have run as high as $3.5 million.

    But in 1986 Bond asked Chemical if he could pay up the lease
early, settle the difference between the lease payments and the
original $3.96 million and take ownership of the Manet. All seemed
well until an American adviser in 1987 pointed out to Chemical that
by law the Manet belonged to the bank and not to Bond. Its price
had gone up. So why shouldn't Chemical auction the Manet on behalf
of its shareholders? On learning of this suggestion, Bond
reportedly flew into an epic rage. Chemical backed down and let
Bond pay off the lease and keep the picture.

    Last week at Sotheby's, Manet's La Promenade was sold for $14.9
million to an unidentified Japanese buyer. If one accepts
Dallhold's figures, Bond has thus cleared his debt to Sotheby's.
If not, not.

    Bond's Bond Corporation Holdings Ltd. is on the verge of
bankruptcy; in the measured language of its auditors, Arthur
Andersen & Co., there is "some doubt that (it) will be able to
continue as a going concern." The painting is reportedly back on
the market at $65 million, but there have been no takers so far --
though Bond's spokesmen imply that they have almost had to beat
would-be buyers off with a stick. Leading dealers, asked this month
what a feasible price for Irises might be, concurred that it might
lie in the $35 million to $40 million range.

    Will the blue flowers find their white knight? Big money loves
a fresh picture, but Irises at this point in its market career is
looking a trifle wilted.