Artnet: forced to change structure?

Weng Fine Art AG (WFA), Artnet AG's most important external shareholder, announced on September 19, 2022 that it intended to make a voluntary, public acquisition offer to the art platform's other shareholders. This »other acquisition offer« came as a surprise. Weng Fine Art does not exceed the 30% control threshold with this offer - and it is not desired to do so. It intends to increase its shareholding to just under 30%. In return, it is offering Artnet shareholders a share price of 7.20 euros. With this offer, WFA is giving shareholders a chance »to sell a larger number of Artnet shares at an interesting price, despite the current poor business situation.« Before the offer, they would have been able to sell only a few of their Artnet shares for more than five euros.

Of course, the WFA is not acting without ulterior motives. It is the most important external shareholder of Artnet AG (Artnet) - next to Galerie Neuendorf AG, which belongs to former Artnet board member Hans Neuendorf. And that's where the rub lies: Neuendorf got rid of the management position, but now operates not quite so »former« after all.

Who leads whom?

In 2021, before the Annual General Meeting, Weng-Fine CEO Rüdiger K. Weng already pleads for a structural change of Artnet, because he had a premonition. The WFA therefore arranged with Artnet to undergo a voluntary special audit.

The audit report then revealed exactly what Rüdiger Weng had suspected: that it was unclear to what extent board member Jacob Pabst was actually fulfilling management responsibilities on his own. Former Chairman Hans Neuendorf, Pabst's father, could do more than advise - which is his actual and quite official task. Secretly, both the auditor and the WFA fear that Neuendorf continues to pull the strings in Artnet's management through the back door. The auditor criticizes this non-transparent separation of functions - it violates the Stock Corporation Act and entrepreneurial principles.

The employment contract of son Pabst, for example, pointed to the diffuse division of labor: Artnet had extended it, but the auditor had only undated and unsigned copies of the document. Nevertheless, the consulting contract of father Neuendorf stipulates 15 working days per month for a monthly salary of 28,000 euros - and this despite the fact that »no written evidence of the services rendered is available«. The WFA concludes from this that a »disguised old-age pension« is hidden behind the above-average consultancy fee. In addition, the audit report revealed a number of other financial inconsistencies, such as nebulous travel and expense claims, alleged salary payments, bookings by Galerie Neuendorf AG without any economic connection and, moreover, no contractual basis for the activities of the Supervisory Board members. The WFA thus also explains why »the supervisory board of Artnet has neglected its control for years«.

A self-proclaimed family business

Weng has been pushing for a structural change at Artnet AG for some time. He criticizes the 85-year-old »family patriarch« Neuendorf for letting Artnet degenerate into a »self-proclaimed family business«: the sole director is his son Jacob, the position of Chief Strategy Officer in Artnet's management is held by son Albert, while son Henri was first responsible for editorial content and is now Contemporary Art Specialist. Then there is the daughter-in-law, who heads the newly formed NFT Department, and daughter Sophie, who heads Corporate Communications. In itself, this might not be so bad if Artnet hadn't accumulated a consolidated loss carryforward of nearly $53 million since its IPO in 1999. Since then, it has not been able to pay a single dividend to its shareholders. Something must now change about this weak commercial and strategic management, WFA believes.

The straw that broke the camel's back for Wenig was therefore probably the Annual General Meeting in early September 2022: Neuendorf made it onto the Supervisory Board with a result that could hardly have been closer - with 50.7 to 49.3 percent.

What does Weng Fine Art want to achieve?

The WFA clearly sees wasted potential in the occupation of Artnet, which only a redistribution can ignite: »According to the assessment of the WFA, Artnet can only become entrepreneurially successful with the support of a financially strong partner. With the funds from a capital increase, Artnet could consolidate and expand its position on the art market. In order to open up the necessary options for action and design, a new appointment [...] is absolutely necessary.«

The fact that WFA now wants to increase its own share to just below the control threshold through the voluntary acquisition offer is a strategic move. After all, Galerie Neuendorf AG currently owns 27% of Artnet shares. Just one percent more and the WFA would have the »upper hand« over its adversary - and more influence, even without a voting majority.

Above all, WFA wants to bring Artnet up to speed in the area of mobile online art trading. As a big player, Artnet continues to show little presence in this area and has »not yet communicated a strategy for this,« WFA justifies with results from its own subsidiary ArtXX AG. They also show that e-commerce in the art market is growing extremely fast. Despite all the urging for a paradigm shift, WFA nevertheless has no intention at present of exceeding 30% - especially as the company would then have to submit a takeover bid to all shareholders.