Issue #47  8/12/2002
Bonhams Buys Butterfields From eBay; eBay Buys PayPal

Bonhams, the privately owned British fine art auction house, has just acquired Butterfields auction house from eBay Inc. The agreement includes the purchase of 100% of Butterfields' stock, including Butterfields' traditional auction business and certain real estate occupied by Butterfields in San Francisco and Los Angeles.

With galleries in both San Francisco and Los Angeles, the new U.S. company will continue to trade as Butterfields. The acquisition was funded entirely from Bonhams' own resources, without recourse to external borrowing. It comes just a year after Bonhams merged with fellow UK company, Phillips Auctioneers (not to be confused with the European and New York auction company Phillips) and follows closely on the heels of eBay's new relationship with Sotheby's. All three of the now-merged auction houses have, from time to time, dabbled in photography, but none seem to have had the staying power to battle it out with Sotheby's and Christie's on this front.

A spokesman for eBay Inc. said the acquisition of Butterfields in April 1999 facilitated eBay's entry into the fine and decorative art and collectibles categories. The purchase also helped eBay reach out to a new class of buyers and sellers. In September 2000, eBay and Butterfields launched eBay's Live Auction technology attempting to bring the traditional showroom auction to Internet users. But the acquisition never really seemed to jell, and the tension between the high-flying Internet company and the bricks-and-mortar auction house seemed to build as plans to move auctions from the showroom to the on-line venue failed to work as planned. EBay originally acquired Butterfields for $260 million in stock.

The sale to Bonhams of Butterfields and its wholly owned financing subsidiary closed on July 31, 2002. The sale to Bonhams of certain real estate currently occupied by Butterfields is expected to close in Q4 of this year. Financial terms of the two transactions were not disclosed, however, they are not expected to have a material impact on eBay's Q3 or Q4 2002 consolidated financial results. In other words, eBay did not come close to recouping their purchase price on this fire sale.

The current incarnation of Bonhams was formed by the merger in November 2001 of Bonhams & Brooks and Phillips Son and Neale, UK. Today, Bonhams is reportedly the world's oldest and largest auctioneers of fine art and antiques remaining with British ownership.

In an earlier move eBay announced that it had agreed to acquire PayPal, Inc. The acquisition, which is subject to various stockholder, government and regulatory approvals, is expected to close around year-end 2002.

EBay calls this purchase "a natural extension of eBay's trading platform, the acquisition supports the company's mission to create an efficient global online marketplace."

EBay will acquire all of the outstanding shares of PayPal in a tax-free, stock-for-stock transaction using a fixed exchange ratio of 0.39 eBay shares for each PayPal share. Based on eBay's stock price on July 5, 2002, the acquisition is valued at $1.5 billion. According to preliminary estimates, the recognized purchase price is also expected to include approximately $18 million for acquisition-related costs. The calculation of the final purchase price may vary "significantly" from these estimates, and will depend upon a number of factors, including the length of time necessary to close the transaction, and the value of eBay stock at closing.

PayPal, which, according to eBay, will continue to operate as an "independent brand", is a company that provides online payment. Approximately 60% of PayPal's business takes place on eBay, and you can be assured that if the past is any indication, eBay will now jam PayPal down every vendor's throat whether they want it or not. Not surprisingly eBay's current payment service, eBay Payments by Billpoint, will be phased out after the close of the transaction.

For auction news with an even bigger impact on the photography field, see the Insider News Briefs below.