artnet Management Admits to Giving Shareholders Incorrect Financial Statements at Time of Hostile Takeover Bid, Weng Fine Art AG Exceeds 5% Ownership Threshold in artnet

artnet AG has released its nine months financial results, which present an overall bleak picture caused by declining revenues, among other factors. The EUR 0.5 million shareholder loan that the company’s founder and majority owner, Hans Neuendorf, had to provide in March to keep it out of insolvency was a further sign of trouble. The most important new information, however, is the disclosure that artnet’s management supplied its shareholders with “incorrect” financial statements dated June 30, 2012.

The inaccurate accounts pose a potential threat of major litigation for artnet. The company’s shareholders received a hostile tender offer from Redline Capital Management SA in September 2012 when the Luxembourg-based and Russian-owned investment firm offered EUR 6.4 per artnet share, which at the time represented a 40% premium to the market price. A majority of shareholders voted to reject the offer, however, and artnet’s stock is currently trading well below EUR 3 per share.

In other words, artnet shareholders relied on “incorrect” financial information when making their decision about the tender offer received from Redline last September.

Page 14 of artnet’s September 30, 2013 financial disclosure reads:

The German Financial Reporting Enforcement Panel (DPR) established that the condensed interim consolidated financial statements were incorrect for artnet AG, Berlin for the period ended June 30, 2012.

As of June 30, 2013, the condensed interim consolidated financial statements have posted a revenue of 229,000 EUR from the continued operations, and a loss of 1,374,000 EUR from discontinued operations. The expense of 232,000 EUR was falsely allocated to the discontinued operations. This expense would have carried on despite the closure of the magazine.

Additionally, as per the definition, the closure of the Paris office does not fulfill the requirements of a Discontinued Operation. If the expenses from the Paris office had been distributed among the business divisions, as they were in fiscal 2011, earnings would have been reduced by an additional 512,000 EUR. The incorrect disclosure of earnings from discontinued operations violates IFRS 5.33 (a).

The previous year’s information from the condensed interim consolidated financial statement and cash flow for artnet AG for the first nine months of 2012 was corrected in the condensed interim consolidated financial statement for the first nine months of 2013 to reflect the DPR’s findings. The revised figures in the charts have been indicated as corrected. All information in this interim statement reflects the modified amounts.

Redline has declined to comment on this report.

In a separate development this week, German-listed Weng Fine Art AG, Redline’s acting-in-concert partner for the 2012 takeover bid, announced that it went over the 5% ownership threshold in artnet AG by acquiring shares from the California-based Artis investment fund. It reported a 5.33% ownership interest in artnet AG as a result of this transaction.

For more information about artnet and its nine months financial disclosure, please visit www.skatepress.com/?cat=56. For more information on Weng Fine Art AG, please visit www.skatepress.com/?cat=149.

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One Response to artnet Management Admits to Giving Shareholders Incorrect Financial Statements at Time of Hostile Takeover Bid, Weng Fine Art AG Exceeds 5% Ownership Threshold in artnet

  1. Moreno says:

    On top of what you just mentionned, one must say that Rudiger Weng made a nice deal in all this fuss… He went along Redline’s heating up bid process ( which was not a “real one”, otherwise Redline would have put a 10€ per share on the table instead of a shy 6,4€ which they knew it would never conclude positively…), then sold his position around 4€… Then bought it again for 1.6€ (!), and now artnet is quoted for 2.8€. Rudiger Weng is wise… Isn’t he ?

    In any case, Rudiger Weng seems to be the only winner in this “lose-lose” artnet case. One would ask himself : how vome artis sold its position at 1.6€ to Ridiger… While they could have sold everything at 6.4€ a year ago ???

    Why would Rudiger Weng win this “bargain” offer ?????

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