Is Taikang Life Insurance Co. Validating Sotheby’s Or Sniffing Toward a Takeover?

There will be plenty of time to mull over the meaning of Taikang Life Insurance Co.’s acquisition of 13.5% of Sotheby’s stock. The firm has made clear that it wants a seat at the table on Sotheby’s board while it looks and learns.Analysts are already chiming in that the deal presents a validation of Sotheby’s strategy.

“There’s always been this idea in our mind that Sotheby’s the business has not yet achieved the full potential of Sotheby’s the brand,” said David Schick, the lead luxury analyst at Consumer Edge Research, in an interview. “When we see any large purchaser of the stock it reflects a vote of confidence.”

Many others have remarked, and Schick does so as well in his report on the share purchase, that there are plenty of benefits to both sides of the equation. China Guardian and Sotheby’s each of relationships and practices that could offer the other side opportunities. But at some point, swapping information will reach the limit of its value.

Taikang will have to decide then—18 months from now? 3 years?—whether to buy more of the company or sell its stake.

There is another way to look at the situation. Since Dan Loeb installed a new CEO, the stock for Sotheby’s has fallen more than 20%. The company has also bought back a substantial portion of the equity shares. Even in that trading context, Taikang was able to amass a substantial stake in BID without dramatically moving the price of the stock.

Taikang’s vote of confidence has given BID a shot in the arm. If Sotheby’s can report strong earnings on August 8th as the CEO suggested during the last earnings call, the stock should finally rise above where the activists acquired it.

If earnings fail to materialize, however, does the stock fall again putting the company in play?

Chinese Company Now Largest Sotheby’s Shareholder  (The New York Times)