Mercury Rising

Mercury Rising

In early October, the Moscow-based Mercury Group, Russia’s largest luxury-retail company, bought a controlling stake in the cash-strapped auctioneer Phillips de Pury & Company. Although the sums involved in the private transaction were not released, a source familiar with the deal says that Mercury paid approximately $60 million for its majority share, of which “around 50 percent” was to cover Phillips’s debt.

It is also believed that Dmitry Filatov, the St. Petersburg–based food-production magnate, sold his 15 percent stake in Phillips to the Russian retailer in a separately negotiated transaction. Mercury is run by Leonid Friedland, whom the style writer Suzy Menkes has described as “one of the most powerful men in fashion,” and his associate, Leonid Strunin. With reported annual revenues of more than $8 billion, the company operates high-end department stores and shopping centers, including the prestigious TsUM, in Moscow, offering such labels as Gucci and Prada, plus luxury items like Rolex watches and even Bentley and Ferrari cars.

Having established itself in upmarket retail, Mercury has taken the logical next step of engaging “in contemporary art and design, which are the objects Russian millionaires want as they climb the social ladder,” says the Frankfurt-based art consultant Nic Iljine.

Mercury did not make anyone available for comment, preferring, says the Phillips spokesperson Ariel Childs, to have Phillips speak on its behalf. Mercury “will help build an even stronger international network for the business and support the company’s outreach,” says Childs, adding that plans for a “regional headquarters and office development” would be announced shortly.

“This partnership with a major player in the luxury sector will allow us to provide a platform to new and fast-growing markets,” says Simon de Pury, the chairman and auctioneer of Phillips, who will retain his central role and his stock in the firm.

The takeover caps a nearly 10-year roller-coaster ride for the auction and private art-dealing firm. In 1999 the French businessman Bernard Arnault and his LVMH group acquired Phillips for a reported $120 million. A year later, Arnault brought in the former Sotheby’s executives Simon de Pury and Daniella Luxembourg to run the company, which he merged with their Zurich gallery, de Pury & Luxembourg. The resulting firm, Phillips de Pury & Luxembourg, was cast as a threat to the duopoly of Christie’s and Sotheby’s.

After huge investments failed to win Phillips a significant share of the Impressionist, modern and contemporary art markets, LVMH’s ambitious strategy foundered in a sea of red ink. Arnault and company gradually bowed out of the partnership, ceding control to de Pury & Luxembourg in February 2002; the following January, LVMH sold its remaining stake for a token sum. In March 2004 Luxembourg resigned to start her own dealership and art-investment fund, selling her shares to de Pury, with whom she still maintains the Zurich gallery, which Mercury did not acquire in the deal.

Speculation abounds about the circumstances surrounding the Russian company’s buyout of Phillips, which came less than two weeks before the house’s humiliating October 18 contemporary evening sale in London, where just 25 percent of lots sold by value. “No one knows what the story was,” says one New York private dealer who insisted on anonymity. “But Simon has lost a lot of money.” Last year the house’s sales total was $308 million, more than three times 2004’s figure—but even with that increase, Phillips is faced with current and overhanging costs, including those involved in 2006’s multimillion-dollar expansion in London and a new headquarters there, not to mention consistently aggressive guarantees offered to woo consignors. Childs emphasizes that, “All consignors to our sales have been paid according to the terms of agreement made between each consignor and Phillips de Pury & Company.”

De Pury remains upbeat about Phillips’s prospects and explains the purchase this way: “I was approached back in the summer of 2007 by an [unidentified] friend of the owners of Mercury who expressed to me their interest in investing in the company. After that, I got to meet them, and what started as general talks led to conversations that intensified over the past few weeks and have culminated in the deal that we have done.”

He notes that the Mercury Group will leave the auctions to him and his team, doing its part in beefing up the company’s infrastructure and capital base. Meanwhile, de Pury shows no signs of curtailing his ambitions. “We want to expand our activities in Russia,” he says, “and we could not have a better partner to do that.”

"Mercury Rising" originally appeared in the December 2008 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's December 2008 Table of Contents.