Nearly two years to the day the World Trade Center and Pentagon were attacked by terrorists, the sale of Championship Auto Racing Teams Inc. to Open Wheel Racing Series LLC has commenced. The two groups signed an agreement, dated yesterday,...
Nearly two years to the day the World Trade Center and Pentagon were attacked by terrorists, the sale of Championship Auto Racing Teams Inc. to Open Wheel Racing Series LLC has commenced.
The two groups signed an agreement, dated yesterday, that provides for OWRS to acquire CART at a meager .56 cents per outstanding share, excluding the 3,377,400 shares owned by principal Gerald R. Forsythe, which are being contributed to the OWRS holding company.
The deal has been expected and has been in the works for quite a while, at least in the public's eye. Open Wheel Racing Series, in addition to Forsythe, is a group of investors comprised of Paul Gentilozzi, Kevin Kalkhoven and Carl Russo. MotoRock owner Jamie Rose is part of the group.
The principals are all owners of CART teams: Forsythe owns Player's/Forsythe Racing, which runs point leader Paul Tracy and Patrick Carpentier as an ersatz "Team Canada"; this is Trans-Am Series owner Gentilozzi's first foray in CART with Rocketsports Racing's entry for Canadian Alex Tagliani; Kalkhoven partners with former BAR F1 principal Craig Pollock at PK Racing, whose current driver is ex-F1 pilot Mika Salo; first-year team owner Russo's RuSPORT team recently won the CART Toyota/Atlantic Series with rookie A.J. Allmendinger, who is partnered by Aaron Justus.
Open Wheel Racing Series has an opt-out clause in its agreement with CART that allows it to "terminate its agreement on or prior to September 18, 2003 if Open Wheel Racing Series in its discretion determines that it is inadvisable to proceed with the transaction for any reason whatsoever." According to CART's press release, OWRS insisted on this termination right "to complete its due diligence process."
CART's stock was trading at the 88-cent level yesterday. Its high price has been in the mid-$30 range; its low is anyone's guess. And could still occur. Since going public, CART has encountered loss of revenue as its prior partners departed, including PPG Industries, Mercedes-Benz, FedEx, Anheuser-Bush, Toyota, Honda and many others.
The firm's sanction fees have all but disappeared in the past year and a half as marquee drivers left CART for the Indy Racing League. Its Bridgestone Presents the Champ Car World Series Powered by Ford 2003 season was in doubt as the firm's remaining promoters mandated a minimum field of 18 cars.
To get to that grid-count level, CART found it necessary to subsidize its remaining teams and promote its own races, thereby spending its principal down to an as-yet unknown level.
Therefore, in addition to stockholder approval, the sale is subject to various other conditions, including [but not limited to] "(1) absence of a material adverse effect or bankruptcy event, (2) subject to certain exceptions, there not being any pending or threatened suits advancing non- frivolous claims that Open Wheel Racing Series reasonably believes would not be covered by CART's insurance policies or that seek to prevent consummation of the merger, prevent OWRS from owning [the company] or prevent OWRS from operating any material part of CART's business (3) appraisal rights under Delaware law being exercised with respect to no more than 16% of outstanding shares and (4) the termination of all outstanding stock options."
Both parties expect the transaction to close near the end of the year, which brings up the point of 2004 and expectations for a racing season, as most teams must finalize their sponsorship plans and proposals right now in order to secure proper funding. As of this writing, no proposed schedule has been offered, although both parties have expressed the desire to continue the mix of road, street and oval courses. Off shore events such as the successful Surfers Paradise round are expected to continue but European rounds are in jeopardy.
The agreement does stipulate that CART retains the ability to "pursue and accept a superior acquisition proposal" and, should they find one at this late date, OWRS gets a $350,000 termination fee. If OWRS terminates the agreement because CART's board "withdraws or adversely modifies its recommendation of the transaction to CART stockholders or takes action under its shareholder rights agreement to permit another person or entity to acquire 15% or more of CART stock", OWRS still gets the $350 grand.
Through Kalkhoven and Gentilozzi, OWRS declared: "Championship has millions of people who come to the races and even more follow it around the world on television. Open Wheel Racing Series intends to fulfill its commitment to these fans by keeping [CART] in its current format. It is our intention that Championship will be the premier open wheel racing series of the Americas." OWRS believes the "long term future of [open wheel racing in the Americas] will be enhanced by introducing new fans to CART by its collaboration with MotoRock," the concert promoter that will present its first event in conjunction with a CART event at Miami in two weeks.
Of course the agreement must be approved by stockholders who hold a majority of the outstanding shares. An existing agreement between CART and Forsythe stipulated 1,169,680 of Forsythe's shares will be voted " in accordance with recommendation of the Championship Board." OWRS has committed to vote the remainder in favor of the transaction. The transaction must also be approved by "disinterested stockholders holding a majority of the disinterested shares that actually vote at the stockholders' meeting. None of Forsythe's shares, including those voted in accordance with the recommended of the Championship Board, however, will be treated as 'disinterested'."
What does this mean? CART president and CEO Chris Pook believes "the transaction provides the best value available to stockholders while at the same time making it possible for our series to continue in the future. We realize that the price is disappointing compared to recent trading prices for our stock." He said CART management had vigorously pursued other alternatives but found none. "We even considered liquidating the company, but concluded that after covering all our existing obligations and all of the liabilities that would be created if Championship went out of business, there would be less left for our stockholders than the consideration offered in this transaction."
There are four events remaining on the 19-event 2003 Champ Car schedule: Grand Prix Americas at the Miami waterfront September 26-28; Gran Premio Telmex-Gigante Presented by Banamex/VISA in Mexico City on October 10-15; Lexmark Indy 300 in Surfers Paradise on October 22-25 and the finale Champ Car 500 at California Speedway October 31-November 2. CART intends to go forward with these four contests as its takeover commences.
At the present time, there are 19 entries in the Champ Car World Series. Paul Tracy leads the current standings, shadowed by Bruno Junqueira and Michel Jourdain Jr. Tracy's sponsor Player's cigarettes is committed, by Canadian law, to withdrawing their support of the Forsythe team it co-owns as of October 1st, which means it can not use its blue-and-white colors and logos after that time.
OWRS partner Carl Russo has stated his desire to see CART merge with the Indy Racing League, but no comment is forthcoming from IRL. Russo believes that is the only way for open wheel racing to survive in the coming years as support ebbs for the current makeup of two separate series. Russo has gone so far as to suggest adoption of chassis utilized by the IRL's IndyCar Series, despite agreements in place to keep the current formula in play through the 2004 season.
Pook had put forth the plan to take away turbochargers that have identified CART since its inception in 2005, replacing said V8 2.65-liter engines with V10 motors from European-based manufacturers. It has been his intent to see the Champ Car World Series move toward a similar formula to that current used by Formula One. No manufacturers have yet stated a commitment to this plan.
Championship Auto Racing Teams' slide to this day commenced with the retirement of its best-known drivers, which began in the early 1990s. Lacking major name draws, CART failed to capitalize on its up-and-coming pilots and present them as the new heroes on the American open wheel front. By enabling major teams such as Marlboro Team Penske, Target Chip Ganassi Racing, Mo Nunn Racing, Andretti Green Racing et al to defect to the Indy Racing League, the biggest names still on the CART docket are 1996 champion Jimmy Vasser, Tracy, Carpentier and, by default, Junqueira, Tagliani and rookie Sebastien Bourdais, the 2002 F3000 titleholder.
The success of Open Wheel Racing Series' agreement is also predicated on agreement by all CART shareholders, a tenet that is not writ in stone. Occasional Barber Dodge Pro Series driver Jon Vannini, a major single shareholder has stated his intent to bring suit should CART bring down the price of stock in order to initiate a cheap sale. Vannini culd be the wild card that stops OWRS from acquiring the company and causes it to go into receivership.
The announcement that CART and OWRS have reached an agreement is only the beginning of this plan to bring CART back to health. A good dose of tough medicine for CART is necessary in that it must rid itself of the perception that death is imminent and move forward to race another day. This, unfortunately, is easier said than done.