There was a generally negative reportage of the news that Marussia has acquired the shares in the Formula 1 team that were previously owned by Lloyds Development Capital (LDC). I am not sure that I understand why.
LDC is a private equity company and a subsidiary of Lloyds Banking Group. Its involvement in the F1 project was entirely financial and the goal was to make money. From what I hear the firm did exactly that. Perhaps it was not a huge amount, but I am reliably informed that they did not “take a bath” on the investment.
From the start LDC held the majority of the shares in the team, known in those days, as Virgin Racing. It is believed that it invested only $15 million. It left the running of the operation to John Booth and Graeme Lowdon of Manor Motorsport. The aim was to use the commercial firepower of the Virgin brand to excite interest in the new business and this resulted in Marussia becoming first a sponsor and then an owner of the team. LDC says that at the end of 2010 it sold some of its shares and achieved “an attractive return on its initial investment, together with the retention of a shareholding in the team”, which could be sold at a later date. That transaction gave Marussia control of the business, although the management remained more or less as before, while LDC reduced its shareholding to just over 25 percent. LDC did loan Marussia Virgin Racing some money as well, but this debt is in the process of being repaid.
The point that has been missed by the people analysing the story is that while the team may have booked some losses in the course of the formative stages, the negative value belongs to that entity, not to the shareholder and so if a buyer is willing to take on the debts, a shareholder can depart with a profit on its shares. LDC has thus parted with its remaining 25.3 percent, all of which is pure profit, assuming that the loans it made are paid.
So LDC is happy and Marussia now has full control of the business. The major conclusion can draw from this is that Marussia owner and financier Andrej Chegalov has faith that the team is worth investing in further. And that is not a negative message. Cheglakov is a scientist who has made fortunes by introducing new technologies into the Russian markets. He is involved in many different businesses, including the secure printing of Russian bank notes. He has just been named as a senior vice-president of Rostelecom, the market leader in broadband and pay-TV in Russia. It is fast expanding its mobile data networks, while retaining its fixed line services. It is also an innovator in cloud computing and e-government services.
Marussia Motors, itself, has been quiet for a while. The primary problem seems to be the supply of engines which was going to be done by Cosworth. The company now seems to be looking at ways to have Russian-made motors, while in the meantime is keeping in the public eye with a rumoured deal to build presidential limousines for Vladimir Putin. The F1 team continues to build the Marussia brand, even if there are no products available at the moment.
joeblogsf1 
All fine unless the reason for the sale was this: Lloyd’s loans money. Lloyd’s wants security over the loan. Security in the form of shares you already own isn’t much good – so The lender demands that the owner of the other shares buys yours. In sure Lloyd’s still has a charge over the whole business if the debts aren’t repaid, so it could be a win win – money on selling the shares, shares back on loan default.
Yes, that’s possible but I don’t believe it to be case
I had forgotten Pat Symonds is there now, which might explain the upturn in form this year. I also hear they have done a deal with Ferrari (no surprise really given Bianchi went there last minute) so there is reason for the owner to be optimistic I think.
Well now they have a angle as to minority rights in their equity stake.
Might seem small beer, but there are a lot of angles to play with a minority holding, *if* you know how to use them.
Might have been elsewhere, but I exchanged a thought with IIRC Rpaco, that this might be the legal story of the year, or even of several years.
There’s not a oligarch out there who didn’t ply minority control into a empire.
Also, shame, Joe, for not reading properly all my comments from the Lotus v Lotus era, and getting passing off skew whiff! š
Always through Marussia was a bit of a strange one, being in F1 and running Marussia cars but not actually having their sports car on sale, I hope it does eventually make it into production, it wouldn’t be the first supercar maker to disappear before it started
This is the team that Bernie is hoping that natural selection will eliminate in the future, since he has apparently said that he only wants 10 teams in 2014 and onwards, obviously the ten teams he has commercial agreements with would seem to be his favourites for the future.
(though strictly speaking this a matter for the FIA not Bernie as it is in the Sporting regs, though of course he now influences the regs too)
However it is possible that Marussia may not be the 11th team unless Caterham show some dramatic improvement. Bernie will then be gritting his teeth as he pays out to the tenth team. It is also rumoured that Marussia are nearing an agreement with Ferrari for the supply of engines.
But if Marussia don’t sign with Bernie he will still be paying Caterham even if they finish 11th.
Who knows? The Concorde Agreement said two years out of three in top 10 so next year Caterham should get Column 1 money but not Column 2. But there is no Concorde Agreement, so who knows?
Are these terms not in the commercial agreements with teams?
I also dont ‘get’ this: ‘The point that has been missed by the people analysing the story is that while the team may have booked some losses in the course of the formative stages, the negative value belongs to that entity, not to the shareholder.’
If the team makes a loss that means it has spent more money than it got in. Where did that spent money come from? It is either given by owners or lent by owners. Lloyds gave the loans to Marussia so I think that the whole point rests on this:
‘LDC has thus parted with its remaining 25.3 percent, all of which is pure profit, assuming that the loans it made are paid.’
If Marussia goes bust then it isnt likely that the loans will be repaid. Chances are that it will be in trouble if it finishes 11th because the 10 million payment has been taken away so there seems to be a close link between these two elements. Lloyds is getting out at the right time because if Marussia closes then it could lose its loans.
True, but who says Marussia is closing? No-one. You need to understand that Andrej Chegalov is RICH. You could say exactly the same about Lotus.
Youre right that no one has said Marussia is closing but they have said that losing 10 million could force them to close at the end of this year. Then Lloyds probably loses its loans and its 10 million profit becomes irrelevant. This is why I think there is a close connection between the two 10 millions sums
Bernie probably figured that he wouldn’t need to pay them to keep them afloat (unlike HRT) – win-win situation! Amazing how rich the richest Russians are when compared to the rest of the population.
Marussia Motors to build limo: Looks like something Tony Stark would be seen in! http://autoya.info/img/content/20110/russian_president_car.jpg
Hmmm – apart from the radiator grill haven’t Chrysler aready made this car (i.e. the 300C)?
Joe,
I am comfortable that LDC did indeed take a bath on this one. Met them in the formative stages of the team and advised them against this opportunity as a money maker. Believe they got sucked into some of the Branson hype…
Am also close to one of their other mainstream investments and know how they work: ‘an event’ (float/trade sale/similar) inside three years’, tick-tock
Allow me to close by posing a question: if you had the means, would you lend Marussia the thick end of Ā£40m?
If what you say is true then the company has lied in its public statements, which would not be very smart.
Branson’s involvement in this business was always nominal.
My sources are reliable and I believe them.
So did your sources happen to mention if the payment took the form of a truck load of freshly printed rubles? I imagine that is why you mentioned the printing of money??!!! š
Joe,
I would have to agree with (Paul), and state that LDC took a small hit on the funding they did to the team. One would call it a āhaircutā. Yes you are correct in that you pointed out the timeframe of the deal, which is what has now happen.
But they didnāt make the so called profit; they may claim to have had on the deal as a whole.
I am afraid that I have no reason to disbelieve my source.
Joe,
I am sure your source on this is very reliable and top class.
But ask any Banker, what is the answer to a simple question like 2 + 2 and they will answer what would you like it to be? 3, or 4 or 5, you pick which one you want.
On this sort of deal it can be ādressedā up to look like a profit for one party and a lost for another.
In our world it looks like a āhaircutā was taken on the deal, and in your world it looks like a profit.
LOL, that’s because who people imagine might be bankers are as much so as the nice checkout girl at Tesco’s is a Grocer!
as for Marussia and it’s motor supplier it would be reasonable for them to go with Renault (I know, that this is a challenge due to number of deals Renault already has) but branded as Lada, the way like RB is has Infinity š
I think that is rather unlikely.
Mr. Saward,
The timing seems strange to me, LDC sells it’s shares and immediately after Mr. Ecclestone subtracts 10 million from the Marussia budget. Any comment?
No connection between the two.
Your usual very good sense and clear analysis. Never mind the constant conspiracy people.
Great analysis as ever and why I’m an avid reader of your blog, GP+ and listen to your podcasts… and not read the rubbish on pitpass……..who would have no doubt reported this but totally out of context….
Howdy just wanted to give you a brief heads up and let
you know a few of the pictures aren’t loading properly. I’m not sure why but
I think its a linking issue. I’ve tried it in two different internet browsers and both show the same results.
I have no idea to what you are referring.
Cosworth refused to suppy the engines to Marussia. They supplied an initial batch for mule testing on the road car, but the chassis had so much flex in it, Cosworth deemed it to be unsafe and wouldn’t put thier product in that car….
Does this mean that Marussia are allowed to negotiatIate appearance fees directly with the circuits instead of having to go through Bernie? If it does could they possibly get a better deal?