There are lots of stories on the Internet about a flotation of 20 percent of the Formula One group on the Singapore stock exchange, perhaps as early as June. These all emanate from a Bloomberg story which said that CVC is seeking $2 billion for 20 percent of the Formula One business. That would value the business at $10 billion, which is the number that CVC has been flogging as F1’s worth in recent weeks. The desire appears to be to get to the market as fast as possible.
Taking the money and running might not be a bad idea for CVC, although their valuation of the Formula One group remains rather less than proven. A few press reports do not make this number a fact and there are still significant problems which will impact on the valuation. There are questions about a succession plan; there are questions about various legal actions ongoing; and there are questions about the Concorde Agreement. This is still not signed, sealed nor delivered. And it is unlikely to be for many months. Mercedes Benz has said nothing on the subject, but they are not happy, and they have a lot of lawyers. There may have been a press release stating that all the major teams have agreed to a new deal, but agreeing to something and putting it all on paper are two very different things.
There is still a certain amount of astonishment in F1 circles that McLaren agreed to be part of such a deal and the cynics in F1 have suggested that McLaren’s willingness to be involved was simply because Mumtalakat, a Bahrain government-linked investment company, which owns 50 percent of McLaren, was encouraged by Bernie Ecclestone to encourage McLaren to agree to his wishes. Such encouragement would obviously do no harm at all to the Bahrain government’s wish to see a Grand Prix this year and this perhaps might help to explain why Ecclestone has been so supportive of the event, despite the clear and worrying political instability, which is visible to all but officials at the Bahrain International Circuit.
If the race does not happen this year, the Bahrainis may not be happy and, who knows, perhaps McLaren’s position will change again.
joeblogsf1 
First to admit it’s probably completely wrong here, but by my “back of a Worther’s Orginal packet so rough you need snow chains” calculation, assuming the teams get 50% ish and the new debt is being paid down and using a P/E of 5 then it’s worth about $10Bn
Can you guarantee those numbers if Bernie Ecclestone disappears? If half the teams do not take part?
Joe is exactly right. “Formula 1” is a pig in a poke.
It can obviously be worth a bundle if managed properly, but if the teams ever organize, even a little – the whole thing could become worthless overnight. If Bernie goes away, either permanantly or at the “invitation” of Her Majesty, the whole thing could become worthless overnight.
It’s a very high risk investment, any valuation is a guess. The 10 billion valuation makes tremendous assumptions that things will remain as ever they were. Hardly a certainly given the age of the man who has been the sport’s sole leader and cat wrangler these many years.
That’s the whole of the problem isn’t it?
The FIA GT1 championship was rather fun the past few years but in the end they had to overhaul the whole thing to use GT3 cars instead (in spite of still using the GT1 name!) because there were no competitors left.
No teams, no sport.
Imagine if Ferrari, RB, Merc and McL pulled out for whatever reason… All of a sudden that guesstimate goes out the window, and fast.
Good heavens no, I doubt anyone will ever find the true figures, I very much doubt it all goes through FOM/CVC/APM/GP2. Look what happened twice before when a float was attempted, and failed due to a lack of clarity in the accounts and the structure, in the end it had to be reformed as a Eurobond, I would not be surprised to see that happen again either.
If Bernie disappeared the value would dive, he controlls far more than people realise. I suggested before that it would all fall apart, you didn’t agree, but it would certainly never be the same again.
Much of our talk has not been making the distinction between a clear flotation of the commercial structure and a ring-fenced flotation of representative shares.
It’s more interesting to think what could happen if the whole shebang was rolled up and placed under coherent management and governance, but the reality is that can’t happen.
Bernie’s structure, and CVC wishing to hold on to a cash cow, prevent that.
The former wants no scrutiny, the latter likes the income of the status quo, financed at zero rates and reaping fees.
So what I see instead is a structure more familiar to a unit trust or public investment fund. CVC’s interests will be put in escrow, and public shares issued against that. That’s nice, CVC can charge another layer of management fees.
I can’t imagine anything like that trading at anything other than a discount. Hence the high aim for valuation. Such a nice round number.
But what it would provide is an exit to place shares in public, even at a discount to hoped valuations, in the event actual interest rates start applying and the free ride the management firms and all who can access the debt market have had evaporates. Some see that horizon in less than 7 years, or rather see the limits of central bank asset manipulation will run out by or before then, if they have not already.
So the flotation is a hedge, pure and simple, an alternative to rolling over debt financing. What the sport is worth, now, requires at least to calculate these two scenarios, and projecting the interest rate future is harder than speculating what “F1” is worth.
If you own assets in high inflation, you sit pretty. But presently CVC are on borrowed money. So depending when their principals come due, or other terms of their issuance kick in, such as sinking funds, resets or calls / puts it may make sense to sell more than a token number of shares into the market to people eager to trade cash for possession of at least hypothetical assets with known resilient cashflows which act as inflation protection. That also explains why you expect only the most nominal market float of shares possible.
The 10BB number is interesting because it is not back – of – napkin – impossible, but neither is it a strict target because this deal will go down in many stages. Why would you sell off something you make money managing? Bernie must be sad he never got to a flotation when first mooted, and missed a good end of bull run.
The sad grip of professional financial management is they like any organization exist to perpetuate themselves, not make decisions. To imagine CVC want out, and other parties, so that F1 becomes a actual self serving entity on a public market, means that far better than several times a decade’s future profits must be on a silver platter for the incumbents. I conclude that 10BB is therefore what they hope for for their internal numbers, but if you wanted in to buy clean, you’d have to multiply that.
And I wager this is the one time Bernie thought he had an out – he did want the public future, and in that he would have taken real risk as to his equity – and was duped. More duped than he stymied himself. Met any analysts who did that kind of work in ’99? Kids. 30yr old kids at eldest. I read their lousy books. Unable to see or communicate unless it fit a cookie cutter because the market was a IPO engine, streamlined for who played ball, whole con on the market for other things, something i once fell foul of in a smaller way, not seeing where people wanted to be, and just pipeline rubbish to the market. Not real banks and true bankers who would have cleared up any mess, fixed things on their own name. I say Bernie was duped because he is old line, and maybe he expected that from the banks he chose also. Look at the names he chose – he chose old names gutted of their sensibilities to gear on no capital, not contrarian specialists because those didn’t exist except in closed shops. So they took one look at Bernie, who had accumulated some capital, and stripped it. Against their leaning, to have capital, oh, awful. Slice and dice. Sold him a iffy trust too, because that was expense the taxpayer not them, and liability Bernie, not them. One he allowed the debt, oh, dear. Did he not look duller, ever since? I think Bernie was conned. Made rich, but conned. Not rich, in the end. He is still chasing to save his fortune. Slavery, even for Bernie. Do motor bike dealers really beat the financial markets? No. The markets want it on a plate. When they hand it out, watch out. Bernie’s age then, and his divorce, made him fragile, and how was he to learn another entire game?
Firstly here there is no such thing as a clean buy in, every deal that Bernie walks past has extra strings. Even to offer 10 shares you need to provide a prospectus and books that bear inspection. I think that any form of transaction involving a public offer is out of the question. It (the share/bond/PIB/instrument or whatever) can only be bought as a private deal which does not allow outside examination. Otherwise HMRC may well stick it’s oar in, we know they are dying for an excuse and all sorts of restrictive practices be revealed. The FIA and Bernie sailed very close to the wind before and were prosecuted with great zeal in the Euro courts. Part of their get-out was the renting of the rights to Bernie as an entity supposedly separate from the FIA. That ended up as the best deal in history (They also had to give a lot of non F1 rights back)
Point, there rpaco, but again you are assuming the idea is to sell actual stock in the actual entities. Nothing prevents me from launching a synthetic tracker. I could do that OTC right now, privately. What I imagine they are finagling is how to get such a synthetic tracker to have just enough substance to get a proper exchange listing. But if you look at exchange traded fund that do all sorts such as embedding leverage on everything from copper to the VIX or just a plain index, those sit with pride on the top lists, and yet are fiercely fiendish in their complexity, many of the commodity types so far removed from the underlying that their prospectii disclaim even reference to the word GLD (gold, obviously, but PMs are always a paper world unless you have clout so avoiding the proper noun is legally helpful*) and so it is very possible to launch barely credible structures on a main exchange.
The problem is not Bernie’s impending tax SNAFU, it’s finding a plausible way to mimic the underlying cflow and asset behaviors. Once that is done, you merely need to appoint a collateral manager, and all set.
*I was once asked by a man in deep Soviet sphere Asia if I could procure 400 Tonnes of gold. He was effing serious too. Govvy outpost kinda guy. When I disabused him of that possibility (I tried, i freaking tried), he offered a ungodly amount of the local crude at a price which if I could have just physically moved it, on the run it was then (Brent or WTI equivalents if refined to usable fuel, oh, i learned way too much chemistry engineering that year . . ) I’d say i could have now been thinking to buy a healthy stake in F1, or at least a team. Those deals were for real. Each time my man was so far ahead of the curve it scares me right this minute. I seriously was not my pal’s first call, more like his last call, he just figured I sometimes manage outrageous things (we go back a bit and most semi sane business types faint halfway through my opener as to how I trade ads, just not my mate) . . anyhow point being, it’s fun having nutty friends in low profile places in proper real messy business, and so whenever I look at these modern listed “funds” I just cringe. You know people get away with “murder” in the market. But what succeeds is anything which allows people to trade something against a benchmark or competition. F1 has no benchmark or competition. They need to solve that micro-economy problem first.
Yes I could buy and trade your tracker, (I used to trade Covered Warrants.) or inverse tracker or CFD or future, but it does not affect the value of your commodity, unless I use huge sums buying puts which could devalue the actual. But here, as you say, F1 is not an ongoing commodity it is a once only thing, you cannot dig some more of it out of the ground in West Africa. However let’s pretend it does exist as a traded instrument, looking at Bahrain it would have plunged by 15 or 20% this last week. Give it next week, then if there’s trouble it will be on the floor, then it’s time to buy. 😉
Isn’t that just the volatility they want to avoid? Of course, the underlying needs a valuation. What I mean is CVC might try to break out figures and reports from their level, not in the actual companies.
I really can’t think of a sane way around rolling up the constituent companies. Not in the end. It has to be done. If anything there is reason in the outside economic turmoil: who invests wants simplicity now. You have all the games you like trying to suss out the fact that your government has internalised all the most complex credits ever issued, and is choking on them.
My point is how much can they muck around with in the meantime to finagle the presentation? Will anything floated this year or next look like the real business?
You see my guess is they need to play a lot of tricks to buy time for Bernie’s companies to shed their histories. (and his history) It’s easy enough to box through companies technically to loose contingent liabilities.
But, sure, volatility is just what is expected with such a opaque setup.
So they can straighten things out, and maybe have the stock all over the place, and yet secure their hedge. Equally, if they sell all their bonds, they are safe for another while. Or is the stock float rumour just trying to help the sale of the bonds? Are they sold yet? Nothing ever seems to get well managed with F1 and finance. Time for some outside thinking.
One day soon, I think they just have to sit down and realize the sum of parts is greater and hand out a decent slice to the teams, roll it all up and start acting normal. I hate to think the waste of time and energy going for naught now. I used to say every day not positive just took two future ones out of my life, and I hold to that. Get the thing to finally grow. Sorry guys, not every PE exit is gifting you a massive multiple on top of all you already earned plus your fees.
Maybe just me, but any day I prefer to have a good share of a business run to the limits of ability and attracting new abilities, instead of a caretaker cut lifting valuable cargo from a ship trapped for big rent on the doldrums.
(structured finance doesn’t scare me, was right in at the start of all that by accident, however who is selling it does)
– j
p.s. I should say I might practise what I preach, at the time I preach it, but I have often in the past behaved atrociously and personally against what I say now. I didn’t think my company was ready do deal with outside capital then, nor me, and so I did not allow it. I get embarrassed though, because it was plain I also meant to maintain control of what I founded and may have nixed things which could have been far better many fold, several occasions. Declined for many reasons, including the control, but we could have gotten very large very quickly and brought what I wanted earlier. Maybe. And failed I think completely. But my mistakes cost me, trading naked, as general partner. Nobody else. I paid off who courted us and had to be disappointed. My partner couldn’t make those meetings, though he’d pushed for them. Such a different world, now.
tech thing again: the comment box simply is haywire all the time, opens, expands and contracts for unknown reasons, any browser. very disruptive to editing for flow, and e.g. scanning back to try to cut it short.
It would be a whole other thing to add in CVC itself to the offer, or indeed part of the fund. But in regards loosing the history a couple of hundred years should do it. 🙂
How will Bernie fare? He lost his golden share last time in the in the sale to CVC (according to Mr Sylt) So how will any new owner lookat his position? Of course if only the bank’s (administrator/liquidator’s) share is sold the status quo will remain.
No it’s not just you it must be a code change by worpress, have to a CR to open the box again. Cant go back to look for chance now, even the web archive is being edited as I found when looking for old stuff on Maurice Ward. (So maybe Starlite did get classified!)
Hi rpaco,
not much to add as to the flotation, because I think it’s a dead end. I don’t think they can do it, not without serious engineering and long term promises which no-one will really make. That sounds pretty close to Joe’s take, but I arrive at my conclusions differently. I see no technical route to market, whilst Joe sees no market without the teams. My differing view is that I do not think the teams need to be such a part of this. The problem is CVC and Bernie’s messy shop. Clean that up and you can entice the teams. I don’t see that happening. If they thought this was possible, their bond refinancing would at least have a convertible component.
As for the geek: I cannot get this website to work on any mobile browser, and it has been all over the place on clean installs of many desktop browsers. WordPress uses themes, and the theme may be causing the problem. This fad for scrolling down forever is a very poor idea. I am not saying ultimately it is worse, when you consider there was no way to easily get around this blog before. But it has meant no mobile browsing for me and is annoying on the desktop. I have no idea if this impacts search optimisation or any of that, but I think the changes are poorly thought through. For example, no, for security reasons I do not want to enable all scripts from wordpress.com and for anything which does not add value, or authorise third part scripts either. I think there is no need to actively talk to the document object model. This browser, a Firefox recompile called Pale Moon which is highly optimised, well it renders faster than plain Firefox but still slowly because of parsing all the scripts. What is not often observed is that there are more lines of code in this browser than the operating system. People get viruses now through Facebook, because the browser is the vector. For the simplicity that this blog should be, this situation is all wrong, and i fear that someone is playing copycat of other trendy ideas with the theme and not caring at all how people use this blog. I have noticed the editing box has calmed down now, but these problems all stem from being overly clever. The sole reason to get messing around with the page would be to bring content up for logged in subscribers, and things like timelines for subjects or even to follow one’s own threads of interest. I know how I would want to do that, but to be honest, i have not seen a implementation, Anyhow, you would use robust well tested things like jquery and node.js to process fancy stuff like i am thinking of. Just a blog does not need anything fancy. Please, let’s have fancy, but then i’d want bells and whistles, ability to pop out my GP+ sub pages whenever the subject is relevant, or to search seamlessly across the blog and magazine. It could be made into a amazing place to loose oneself, and a great place then for advertisers. Then we would have to accept Joe’s website would just not be a place for discussion any more, it would be a different thing. Still, for what it is, I implore thee, O designers of WordPress things, please stop faffing about unless you have a plan. I shall then keep my fancy dreams to myself!
Hmm seems Mclaren made a bad error of judgment in their investors and are clearly not in control of their own destiny. No wonder eccles is chuffed as punch, he always gets his way….
McLaren’s early sign-off on Bernie’s new deal always seemed very odd. The theory that McLaren’s Bahraini shareholders were behind it always made the most sense.
Given that Bahrain’s race now seems almost certain to be again cancelled, I have to believe that McLaren’s (as yet unsigned) comittment to Bernie’s new deal will also evaporate, at least until McLaren is offered a much better deal.
Though perhaps McLaren will throw in with Mercedes and try their luck in the European anti-competetion courts.
Hi Joe,
Interesting stuff, as always! Do you know anything about whether the US GP is on track to hold this year’s race or not? Reports on websites that are less reputable than yours suggest that it might not happen. I hope it does, as the track layout looks very interesting!
When you are selling something it’s industry norm to inflate the price, so that the buyer can negotiate the seller down and thus feel they have a good deal. Doesn’t matter if your selling buildings, cars or a business, it works.
Yes, and it is normal for people to say “That’s bull.”
Exactly, if both parties can’t agree on the number then they walk away from the deal.
It seems to me they are trying to sell on future increased revenue.
How much was our F1X theme park in Dubai going to generate in income for them?
If this specific link between Bahrani money and Bernie’s willingness to hold the race can be proven, it will be absolutely sickening (as if we needed any more reasons). Take all the “no racing on our blood” messages and add the additional fact that it’s being done because of these kinds of specific business appeasements by a few well-off, protected individuals living in a bubble and I think it spells a disaster for the sport’s image. Take a step back and look; F1 is mixing sport with violence and human rights crimes. Thanks for your news and insight Joe.
Would you be surprised, honestly?
I certainly wouldn’t. The whole sport has an air of dishonesty and naughtyness about it.
F1 is a business and business has always done the deal with anyone if the price is right. F1 is no different to football, to cricket, to the Olympics. If the deal’s right they’ll go to China, or Qatar, or (in the past) to the USSR.
Teargassing and shooting protestors at G8 summits is par for the course now, but that doesn’t stop them taking place. Nobody’s reputation is damaged.
The only way the sport will be tarnished is either if the protests take place on the track or if images of police firing baton rounds at protestors at the circuit gates are beamed around the world. And given that Silverstone couldn’t stop one nutter running down the Hangar Straight, who knows what will happen on either score.
Joe, appreciate the great business coverage as always.
But worth remembering that an IPO is not a liquidity event. Even if F1 successfully completed the IPO, and the entire offering is secondary stock (i.e. no cash raised for company use just selling CVC’s stake) they’ll still be stuck in this deal for years afterwards.
CVC will be very conscious of preserving the value of the majority of their position that they will still be holding. An IPO is no quick exit.
Secondly, I think you’re absolutely right there is no way they’ll be getting this done before there is resolution on the obvious issues (just take a look at the length of an S-1 risk disclosure schedule). But don’t forget it can take close to a year to complete an offering between picking underwriters, drafting the prospectus, comment periods, book building and pricing.
Embarrassingly the contention in Munich by Ecclestone’s that F1 was overvalued in 2005 would seemingly be nonsense even though valued in very similar circumstances as today.
What was it Ecclestone did to increase the value of F1 by even threefold????
Danger of any team pulling out is frankly remote. And the greatest threat to CVC, is as seems more likely by the day is Herr Gribkowsky being found guilty.
Maybe CVC want a little cash in hand before the Gribkowsky verdict comes in and the **** hits the fan?
Joe,
Are you having trouble getting to sleep
No, I am in Japan AND sleeping at odd hours.
Thought so.
You’re right of course, my comment was poorly worded – no trouble getting to sleep, just happen to be doing it at 11AM !
3rd para, got to be spot on.
1st para, There is no cogent valuation of F1. That figure is a ‘what we want’.
The actual worth of the operation varies considerably month on month and stock – under the current configuration – is potentially worthless to any investor.
Ever wondered why its taken so long to get to market – and why Singapore.
Not too many people stepping up to underwrite this issue and how many inst investors do you see ?
What they need is a good old big ego’d nouveau billionaire that believes his own publicity. That’s an easier sell.
There was a news story somewhat related to this money thing.
In America, Molson Coors has bought up a major Beer Company in Europe to the tune of many many millions of dollars.
That European Beer Company is partically owned, if not solely, by CVC.
Maybe the Mole can send in his entourage to get the full story on what the big plan is, as it relates… if it relates at all.
Wasn’t that event something, someone, hinted at on Joe’s blog a coupla days ago?
What are the financial details that are to be put to the public for an IPO?
Will we see the terms of the new Concord agreement if an IPO happens?