Ecclestone sells F1 stake, but what will it mean?

Ecclestone sells F1 stake, but what will it mean?
Nov 29, 2005, 9:38 PM

It has been a six-year battle for the control of Formula One, involving not only the ever-powerful Bernie Ecclestone, but two German media companies, a bevy of banks, the Bambino Trust, and the breakaway Grand Prix Manufacturers' Association. But ...

It has been a six-year battle for the control of Formula One, involving not only the ever-powerful Bernie Ecclestone, but two German media companies, a bevy of banks, the Bambino Trust, and the breakaway Grand Prix Manufacturers' Association.

But the battle now looks to have finally been resolved, with the sale of both Ecclestone's and Bayerische Landesbank's stakes to CVC Capital Partners, a UK-based private equity firm with over $18 billion in investments -- including, notably, ownership of Dorna, the commercial rights holder of MotoGP, the equivalent of F1 on the motorcycle racing side.

Mr Ecclestone himself, is not about to disappear from the scene, in spite of his 75 years, and is expected to continue to stay involved on a day-to-day basis.

"CVC is committed to a flourishing and successful FIA Formula One World Championship," said Donald Mackenzie, one of CVC's managing partners. "We will support every effort being made to maintain Formula One at the pinnacle of world motor sports."

The challenge will be to convince the GPMA, which is planning to launch its own breakaway series in 2008, to abandon those efforts and to sign up long-term with the new F1 ownership. Mackenzie underlined the need for those negotiations: "CVC has given its full support to the current discussions between Formula One, the teams and manufacturers to enable a successful extension of the current Concorde Agreement."

Billions change hands

The saga began six years ago, in late 1999, when Mr Ecclestone agreed to sell 12.5% of his holding company, SLEC -- which had by then gaine commercial control of Formula One -- to Morgan Grenfell Private Equity, a subsidiary of Deutsche Bank, for $325 million.

MGPE had an option to buy an additional 37.5% but was unable to exercise it, so in early 2000 Mr Ecclestone sold that 37.5% share to a venture capital firm called Hellman and Friedman for $975 million. A mere month later, Hellman & Friedman joined forces with MGPE to form Speed Investments, and then sold the SLEC holding through a sale of Speed Investment shares to EM.TV, a leading German media firm for $1.6 billion, or a profit of $300M.

Later that year, EM.TV went through a financial crisis, with its share price plunging from $88 to $3, and EM.TV was forced to look for help from Leo Kirch, the head of another German media empire. Mr Kirch drove a hard bargain, and was able to take a 78% stake in Speed Investments (and thus 39% of in Formula One) for $550M. Kirch also had Speed Investment exercise an existing option held to purchase an additional 25% SLEC for a round number of $1 billion.

At this point, then, Kirch owned 58%, EM.TV 17%, and Mr Ecclestone and his wife Slavica 25%. Mr Ecclestone was $2.3 billion up on the deal, MGPE and Hellman and Friedman had made $300 million -- and EM.TV had lost $700 million.

Acrimony on track and in the boardroom

By this time, though, the manufacturers -- companies like Mercedes, BMW and Honda -- had realized that they were bearing the risks and costs of participating in Formula One, but the SLEC paychecks had several more zeroes to them. With their hands tied by the Concorde Agreement, the manufacturers started planning a breakway series that would provide them with they viewed as a fair share of the revenues and of the control of the series.

This initiative eventually grew into the Grand Prix Manufacturers' Association, and the plan to launch a rival series in 2008 -- but, naturally, at the cost of depriving Formula One of many of its star attractions, such as McLaren-Mercedes, Williams-BMW, Honda and Toyota.

Meanwhile, in the world of finance, there was no shortage of intrigue. Kirch's media empire had begun uraveling in 2002, and in June 2002, the arm that held the Speed Investment shares -- it had meanwhile acquired the remaining shares from EM.TV -- became insolvent, and ownership of Speed Investments, and thus 75% of SLEC, passed to a group of banks: Bayerische Landesbank, JP Morgan Chase and Lehman Brothers.

However, Mr Ecclestone was not about to cede control of Formula One to a group bankers. In spite of owning mere quarter of the shares, Bambino Trust, the Mr Ecclestone family's Liechtenstein-based trust which held 25% of the shares, used rather unconventional techniques that took advantage of a multi-layered corporate structure to elect SLEC's board of directors and exercise effective control of F1.

The banks did not take this sitting down, though, and sued Mr Ecclestone to gain control of the associated companies, winning an initial judgement against Mr Ecclestone and Bambino in late 2004.

The legal issues are now cleared up with the CVC acquisition -- and Mr Ecclestone has now made an impressive $3.3 billion from the four separate sales of SLEC shares, surely moving him up several notches on the list of the world's richest individuals.

The new world order

The new ownership structure, with a company that is experienced in operating a motorsport series at the highest levels -- through Dorna and MotoGP -- then holds much promise.

"We are delighted to have CVC as a shareholder whose long-term strategies and vision will provide the stability for teams, promoters and manufacturers," Mr Ecclestone said. "They are knowledgeable about motor sport and make an ideal partner for Formula One."

However, many teams and manufacturers are still digesting the implications of the news.

"It's extremely positive news for Formula One," said Ron Dennis, the team principal of McLaren Mercedes and one of the leading team owners.

But will the manufacturers be convinced? GPMA's statement said that the organization was looking "forward to entering into a constructive dialogue with Alpha Prema (the new holding company formed by CVC) as we pursue our objective to further develop the sport for the benefit of all stakeholders and, in particular, the fans. However, we will continue the preparations for the new series."

Much more will surely become clear as the dust settles from this latest episode in the saga of Formula One commercial rights.

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Series Formula 1
Drivers Bernie Ecclestone
Teams Mercedes Shop Now , McLaren Shop Now , Williams
Article type News