TIME: Almanac 1993/TIME Almanac 1993.iso/time/112789/11278900.014

Text File | 1992-09-23 | 11.1 KB | 218 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.