CVC Capital Partners is busy making the Formula One group look like a solid investment, despite a number of problems that might hold back the planned IPO in Singapore. The announcement that “three leading institutional investors” have together invested US$1.6 billion in cash for equity interests in the business, acquiring between them 21 percent of the shares is a significant moment.
In theory these transactions value the Formula One group at $7.6 billion, to which the $1.9 billion debt must be added to gain a full valuation of $9.5 billion.
It seems that Waddell & Reed invested $1.1 billion on behalf of clients, while BlackRock paid $200 million and Norway’s sovereign wealth fund Norges Bank Investment Management invested $300 million. One can thus make a rough calculation that Waddell & Reed now owns in the region of 14.4 percent of the business, while Norges Bank owns around 3.9 percent and BlackRock 2.6 percent.
CVC says that it will continue to be Formula One’s largest and controlling shareholder. Selling 21 percent when one owns only 63.3 percent of a business, might suggest that CVC’s share would drop to 42.3 percent. However, it is believed that the private equity group has an option to acquire the 15.3 percent of the Formula One group that was once owned by Lehman Brothers, which is now being sold off as part of the liquidation of the venerable old US investment firm that went bankrupt in spectacular fashion in 2008. If this turns out to be the case CVC’s stake in the Formula One group will be 57.6 percent. It might also have shareholder agreements that mean that new shareholders will vote with CVC and thus control can be maintained, even if the numbers are below 50 percent. It remains to be seen what percentage will now be floated, but that information will be known shortly.
When all is said and done, the sale of these shares means that any hope that anyone in the sport had of getting control of the commercial rights of the business are now effectively gone. A successful attempt to buy control of the Formula One group becomes more difficult as each new tranche of shares is sold and if the float goes ahead and Formula One becomes a public company the chances of the whole enterprise being taken private again in the future are pretty small.
One might argue that the share value might tumble to such a point that a big investor could sweep in and grab the company, but it is highly unlikely that any such buyer would have altruistic intentions and so would probably seek to exploit the teams to the same extent as they are being exploited today. The likelihood of the teams getting together and grabbing control of their own destinies is very small, as they have shown themselves to be incapable of working together for their common good.
They have only themselves to blame. The current dealings, with or without the float, mean that the sport will remain a slave to financiers for many years to come. The best that the teams can hope for is to negotiate a better deal in the Concorde Agreements in the future (be that in 2013 or 2020).
It is fair to say that they have all been outsmarted and outplayed politically by Bernie Ecclestone. He is very rich and so are the people who invested in him. But one has to wonder if this is really what is best for the sport.
But that is another story…