The Anatomy of a Deal

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 art 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.