Fancy a piece of F1 pie?

There is a break in Formula 1 activity at the moment, before the European season gets underway in Barcelona on May 13.  There is a test this week in Mugello, Italy, but the main focus of F1 gossip in recent days has been the planned flotation of a portion of the Formula One group's shares on the Singapore Stock Exchange, which is being planned for July.

There has been a lot of hype on this subject, with a clear attempt by those involved to talk up the value of the Formula One group to $10 billion. This is a lot when you consider that the CVC purchase in 2006 valued the group at only $1.71 billion. Still, there is no law against talking up the price of a sale item.

Many questions
A lot of questions need to be answered and 15 years ago a similar float sank without trace. The plan, put together for Bernie Ecclestone by the US investment bank Salomon Smith Barney ran aground because the markets were wary of the ongoing disputes with the teams, questions over F1 trademarking and the fundamental fact that the company had no major assets, beyond a bundle of lucrative contracts.

That project was backed by an 18-bank syndicate and some solid names on the planned board of directors.

It is a little known fact that Ecclestone rejected the idea of a flotation fronted by the FIA, which was put together by FIA President Max Mosley and SBC Warburg. Bernie decided to try the idea of a bond issue to raise $2 billion, with the bonds secured by F1's TV rights agreements. Morgan Stanley Dean Witter agreed to underwrite the scheme, but in the end Formula One Finance BV was only able to launch a $1.4 billion Eurobond - and that came two years after the planned IPO. Fifteen years later, the banking world is even more cautious than it was in the late 1990s, but CVC seems to think that it can rush through an IPO on the Singapore Stock Exchange, to raise between $1.5 billion and $2 billion with the sale of 20 percent of the Formula One shares. The goal of this transaction appears to be to take money out of the business, but it is also useful to put a price tag on the rest of the company.

In recent weeks CVC has refinanced its debts raising $2.27 billion in new credit facilities, which will be due in 2017 and 2018, to replace the existing $2.92 billion, which are due in 2013 and 2014. There is speculation that the purpose of this move is to get money to buy the 15.3 percent of the shares which are owned by Lehmann Brothers, which will increase CVC's shareholding to 78.6 percent. This would allow for the sale of 20 percent without any impact on CVC's control of the company.

Goldman Sachs and UBS have been appointed as joint global co-ordinators and no fewer than four joint bookrunners: Morgan Stanley, Banco Santander, Singapore's DBS Group and and Malaysia's CIMB who will be looking for investors.
 
Hurdles aplenty
There are still significant hurdles, just as there were back in 1997. There is no Concorde Agreement between Formula One and the teams beyond December 31 this year. Several teams have agreed in principle to deals but Mercedes-Benz, which has its own team and supplies engines to a quarter of the F1 grid, is not a party to these arrangements and there is a suspicion that if Formula One tries to go ahead without the German manufacturer, there could be legal action. This would presumably be based on the idea that deals struck with Ferrari and Red Bull, were not on offer to Mercedes, which might be deemed to be anti-competitive. Any legal action would raise alarm in Singapore.

Other matters need to be solved to satisfy the financial markets. There is no real succession plan for Ecclestone, who at 81 would be deemed a risk. Word has been leaked out of a plan to appoint Peter Brabeck-Lemathe, the chairman of Nestlé, as chairman of Delta Topco Limited, the holding company of the Formula One group.

He is already on the board and is a better choice from Ecclestone's point of view than the other non-executive director Sir Martin Sorrell, with whom Bernie has had several clashes in recent years. There are also legal actions that could affect Ecclestone's situation.

For now CVC is racing to the markets. But will they spin off?

(The writer has covered every grand prix for the last 25 years)

 

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