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F1 keeps Montezemolo and Walsh close, Ecclestone regains board seat

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F1 keeps Montezemolo and Walsh close, Ecclestone regains board seat
Dec 18, 2014, 7:37 PM

There was a significant development today on the board of Formula 1, which is controlled by CVC Capital Partners.

There was a significant development today on the board of Formula 1, which is controlled by CVC Capital Partners.

It reappointed Bernie Ecclestone, who had been forced to step down to fight his bribery trial in Germany this year. It also appointed Paul Walsh, who had been earmarked as Chairman, to a non-executive directorship. Walsh was part of a succession plan to replace Ecclestone, but following a meeting between the two men he decided that the chairman's role would not allow him to exert the influence he wanted to on the sport.

The fact that he's been appointed to the board, however, shows that he has not gone away. That is a statement, both from CVC and from Walsh himself.

This move keeps him close to the sport and means he is on hand through the next few years, when transition towards flotation is inevitable, as is some form of succession for the 84 year old Ecclestone.

Paul Walsh

Also re-appinted today was Luca di Montezemolo, who previously sat on the board in his capacity as Chairman of Ferrari and now has a non-executive director role in his own right. This site has argued that Montezemolo has a significant role to play in F1 as he is one of very few people who has heads of state, monarchs and captains of industry in his Rolodex. Not many people in F1 can open the doors he can open.

There had been moves for Montezemolo to take on the chairmanship, after the Walsh challenge was seen off, but that was apparently vetoed by new Ferrari chairman Sergio Marchionne.

This may look like a shuffling of the pack to retain the status quo, which it is on many levels, but it shows a couple of important things.

Donald Mackenzie

One is that CVC's managing partner Donald Mackenzie obviously, to some extent, fears Ecclestone and is reluctant to go up against him. On one level, this is because Ecclestone has done very well for CVC, which has earned out its original investment at least five times over and is a massive cash generator for them.

CVC bought in for $1.7 billion, but through dividends and selling stakes in 2012 for £2.1 billion, it has so far generated more than five times its outlay.

CVC retains a 35.5 per stake in F1. According to the FT, it expects to make at least $7bn by the time it exits from the sport. Speaking during the case brought in the London High Court against Ecclestone by Constantin Medien, it was revealed that CVC believed it could exit with 10 to 14 times ebitda (earnings before interest, tax, depreciation and amortisation).

There is clearly a fear that if Bernie were not around any more, perhaps the golden goose would stop laying eggs. The only way to find out whether that is the case is to try it and Mackenzie clearly isn't minded to do that at this point.

CVC wants to float the F1 business, but at the same time, they see great potential in the business in the future and the signs are that they would retain an interest post floatation.

For private equity firms, the idea is to buy businesses and sell them for substantially more. But F1 generates so much money, there is also a side to it whereby CVC would have to find some other investment that was likely to generate similar or better yields. Why walk away from a proven winner?

Ecclestone is part of the secret sauce that makes F1, but at the same time there is a feeling in F1 circles that his frequent odd pronouncements hurt the brand and also that the sport would generate more money if he would adopt a more modern business model, particularly around online content.

There is also the question of the sustainability of the smaller teams and whether F1 is poised to consolidate around the five or six big players and either go down the route of A and B teams or even customer cars.

There is a sense of volatility in the air, things will come to a head on this issue soon and Ecclestone is currently focussed on trying to exert extreme pressure on Mercedes to back down on engine development, by threatening to revert to the old normally aspirated units.

Today's board moves show that the status quo will rule in F1's management for the moment, but CVC has also not totally kicked the idea of change into the long grass.

The next 12 months will be fascinating.
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