Feb. 28 (Bloomberg) -- In a Sotheby’s auction in November, a New York diamond cutter defeated three bidders to win the most expensive gemstone ever. Yesterday, the auction house said the buyer couldn’t pay.
The 59.6 carat oval-cut pink diamond, which fetched $83.2 million in a transaction guaranteed by Sotheby’s, was acquired by the auction house after the buyer defaulted. The stone is recorded in Sotheby’s inventory at about $72 million, the U.S. dollar equivalent of the corresponding purchase price in Swiss francs, Sotheby’s said yesterday on a conference call.
“We are currently in discussions with the buyer while also considering other alternatives,” Patrick McClymont, Sotheby’s chief financial officer, said during a conference call with investors. “In the meantime, we are comfortable with our valuation and see real value in owning the diamond at this price.”
The Nov. 13 sale was seen as a sign of market buoyancy and a high-profile success for Sotheby’s, which has faced pressure from investors, including hedge-fund billionaire Dan Loeb, to become more competitive. Loeb yesterday indicated he may engage in a proxy contest after New York-based Sotheby’s didn’t accept his proposal to add three directors backed by Third Point LLC to the company’s board.
Third Point, the largest shareholder of Sotheby’s with a 9.5 percent stake as of Feb. 26, proposed the company add Loeb; Harry Wilson, who helped restructure General Motors Co.; and jewelry designer Olivier Reza to the board, according to a filing with the U.S. Securities and Exchange Commission.
Loeb, whose firm oversees $14 billion out of New York, in October called on Sotheby’s Chief Executive Officer William Ruprecht to resign, criticizing the company’s executive compensation, internal operations and “deteriorating” competitive position. Sotheby’s last month said it would pay a $300 million special dividend and it may sell real estate to hand back more cash to shareholders.
Fourth-quarter earnings at the auction house rose 37 percent to $90.7 million, or $1.30 a share, from $66.1 million, or 96 cents, a year earlier, Sotheby’s said yesterday. The shares fell 6.7 percent to close at $47.01 in New York trading, extending this year’s decline to almost 12 percent.
“Taking back the guaranteed Pink Diamond hurts revenue,” David Schick, an analyst at Stifel Financial Corp., said in a research note, adding he’s “not concerned with the Pink Diamond selling.”
Colored stones, which account for about 0.01 percent of mined production, are prized for their rarity and command the highest price per carat. Pink is the most desirable color.
The diamond fetched the third-highest auction price in 2013 for any artwork or collectible, according to Bloomberg calculations. Two objects that surpassed it were sold the same week in New York: Francis Bacon’s 1969 triptych “Three Studies of Lucian Freud” that went for $142.4 million at Christie’s in New York, and Andy Warhol’s silk-screen painting “Silver Car Crash (Double Disaster),” which sold for $105.4 million at Sotheby’s in New York.
The bidding war for the diamond lasted for five minutes, starting at 48 million Swiss francs ($52.5 million) and the final price set a record for any gemstone at auction. The winning bidder, Isaac Wolf, renamed his trophy “The Pink Dream” after the auction, according to Sotheby’s.
Wolf couldn’t be immediately reached. Sotheby’s declined to comment on what caused the default or whether the buyer had been vetted.
In a television interview posted on Youtube.com, Wolf said he bought the stone with the backing of other investors.
“It’s not that I am buying this with the money I have in my piggy bank,” he said. “It’s basically a group of investors, financial people that are backing me in this and they are doing this as an investment, and hope to make a big profit.”
Wolf said he saw “a great opportunity” in buying the diamond because “this particular color of the diamond today in the 10 carat sells for $2.5 million a carat.” At almost 60 carats, his diamond could be worth $150 million, he said.
“And I bought it for $83 million,” he said in an interview. “So you have to admit that I bought it well.”
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