Is Bernie trying to buy F1 back?

Formula 1 thrives on conspiracy: catch two (or more) team bosses in a huddle, and whispers instantly have them trading drivers/ganging up against competitors/scheming further (advantageous) regulation changes/discussing solutions to the latest catastrophe to hit F1.

In the world of F1 conspiracy, everything goes, with nothing being too bizarre to consider. Indeed, the only variables are the length of time devoted to deliberation/rejection/filing under 'future'.

However, there was a theory shared with this column in the wake of the first race of the season that was simply too outlandish to have legs. Yet...

A source close to Bernie Ecclestone was adamant that he, the source who seldom peddles rumours, knew the reason for the F1 tsar's hefty criticism of F1's new technology, in particular the lack of noise emitted by the sport's new engines, whose exhausts are muffled by high-pressure turbochargers driving compressors and electrical generators. This despite the 83-year-old not having heard the engines run in anger prior to Malaysia...

"Look at it this way," said the source, "if you want to buy something, you do everything to hammer the price down, find fault with the product. I think you'll find Bernie is aiming to buy control of the sport, and you know what hard bargains he drives. He aims to buy out CVC."

After stifling guffaws, AUTOSPORT's next reaction was to argue that, having single-handedly driven up the value from the £1.1bn paid by venture fund raiser CVC Capital Partners in that contentious deal - the aftermath of which saw German banker Gerhard Gribkowsky jailed and Ecclestone charged with bribery - back in 2005 by a factor of (at least) four, even Ecclestone is unlikely to have sufficient fiscal depth to cut a deal with his paymasters.

"Possibly, but don't forget he's got very rich and extremely powerful friends," said source argued.

Does Ecclestone want to reclaim control of F1? © LAT

"I believe he's assembled a syndicate to buy out CVC, who have made a fortune out of F1, but endured headache after headache. It's got to a stage where damage to their reputation by being associated with Bernie and his legal issues is not worth their dwindling return on investment, particularly as listing on the Singapore stock exchange is off the table.

"Don't forget companies like CVC are measured on the two Rs: reputation and ROI [return on investment]. Already [Donald, CVC co-founder and co-chairman] Mackenzie has been forced to testify in the High Court, and next month Bernie's Munich trial kicks off. Who knows what else awaits?

"They made their money, and now it's time to get out before their [annualised] return on investment gets dented too much..."

Said source had a good point or three, particularly Ecclestone's ability to persuade a syndicate to back him (despite his age), and CVC's headaches. Thus the open questions are who, how Ecclestone would reacquire control of an entity he has now sold four times (and, according to Ken Tyrrell, did not legally own in the first place), and why he would do so at an age when most men are shuffling about in PJs and slippers?

The 'how' is easier to answer than the 'why': not only is Ecclestone the consummate entrepreneur, but he's something of a controlling taskmaster. Yet, since massaging the deal which enabled CVC to acquire 63 per cent of F1's commercial rights - and as a result majority control - he has been dictated to, with the latest blow to his well-known modus operandi being enforced 'resignations' from organisations such as Formula One Management and other Formula One Group companies.

During the high-profile Constantin Media court case, Mackenzie in November told the High Court Ecclestone would be "fired" if it is proven he had done "anything that is criminally wrong", and immediately after the charges were confirmed issued a media release stating F1's CEO would be subject to increased monitoring.

Acquiring majority control (again) would certainly set Ecclestone free professionally, even if the court case still bears heavily - but that is another fight.

Indeed, freedom from CVC shackles would enable Ecclestone to cut a deal with the Munich prosecutor's office should he be so inclined, for while such a plea bargain would inevitably require an admission of guilt, he could not be "fired" by CVC were the investment company to exit F1.

F1 entertained in Bahrain, but it hasn't always generated great headlines for its investors © XPB

True, given that litigation commences in a little over two weeks, not a lot of time remains, but in real terms a deal could be struck at any point through to the verdict, in which case CVC could 'spin' the sale as 'doing the right thing', thus bolstering the reputation that is crucial to such companies. As will become apparent, some major challenges face CVC in this regard.

So, how? Ecclestone (5.3 per cent), his family's Bambino Trust (8.5 per cent) and FOM associates (3.7 per cent) currently hold 17.5 per cent of Delta Topco, the holding vehicle for F1's commercial rights. (Liquidated) Lehman Bros has 12.3 per cent - said to be available, possibly immediately after three per cent was recently sold to the Texas Teachers Pension Fund. Such acquisition would take the notional syndicate to nigh on 30 per cent.

Since the planned Singapore IPO bombed heavily for various reasons - not least various litigation suits faced by Ecclestone and associates - CVC (and other shareholders) gradually divested from Delta Topco such that CVC now holds just 35.5 per cent, but, in terms of its covenants, retains overall control.

True, various laws governing trusts would prohibit Ecclestone from exercising control over Bambino, but no law on earth could prohibit the trustees from electing to throw their lot into a syndicate of which he is a member should they decide that such a move would be in the best interests of the trust.

However, so widely spread is Delta Topco's investor base* that, should any of the prime candidates elect to remain independent of the syndicate, the permutations for majority control are fundamentally endless. Some may even volunteer to sell out, having over the years achieved their investment objectives, or simply wish to exit an investment that has brought them enormous returns, but not without rather unsavoury riders: think Bahrain 2011 or even the current Russian situation.

The last named could well prove the tipping point for CVC (and others), for insiders are adamant that FOM is being pressured by commercial and political interests to cancel the race due to Russia's recent annexation of Crimea. Of course, all concerned are making sweet cooing noises, but the fact remains that the European Union and United States of America are considering all options to sanction Russia - including pressure to can the race at the former Winter Olympics site, which is but a figurative stone's throw away from the Crimea.

Of 56 entities currently vested in CVC's portfolio, 31 are EU-based companies and six are USA-based companies, with 19 operating in Asia - and, tellingly, not a single Russian-registered holding company featuring.

Included in the mix are consumer brands, clothing labels, pharmaceuticals and financial services, with the latter including Acromas, owner of Britain's AA motoring service.

It's hard to imagine Ecclestone waving goodbye to F1 © LAT

Other companies include speciality chemicals producer Evonik, formerly known by its acronym Degussa (Deutsche Gold und Silber Scheideanstalt, est 1873) - one of the pioneers of the precious metals processing industry - and the Burger King and Domino's Pizza franchises in Spain. Protesters could have field days across Europe...

In this respect, the FIA finds itself in a rather difficult situation, for its remit is to remain staunchly non-political - hence its stance on Bahrain - but if the commercial rights holder wishes to cancel the race, the sport's governing body is fundamentally powerless to take action, providing just another reason to detest the deal struck with Ecclestone by former FIA president Max Mosley's administration.

Therefore persuading CVC, which has already held its shareholding twice as long as is traditional in the business, to sell out its 35.5 per cent would not provide Ecclestone and his syndicate with 65 per cent and thus outright control, but it would provide the perfect exit strategy for CVC. And, even if it decides to retain its interest in Delta Topco, the syndicate could still acquire up to 65 per cent by other means.

Covenants are said to be in place to prevent a wresting of control from CVC, but it is difficult to argue with votes...

The only open question is who? Who would Ecclestone's partners be? Red Bull's Dietrich Mateschitz and Ferrari president Luca di Montezemolo are obvious candidates, while Mosley is not short of a shilling or two. Between them they would love more input into F1's regulatory processes, particularly given their current situations.

Other teams, too, could buy in. In fact, about the only top team that would be inclined to recuse itself is Mercedes, for the company's corporate compliance guidelines would preclude such an investment, certainly while Munich looms large. But then over the years Ecclestone has rubbed shoulders with various captains of industry across the globe - and all know a good buck when they smell one.

Could it come to pass? Certainly, Mackenzie and Ecclestone worked the Malaysia paddock hard all weekend, and were not just soliciting comment on the latest catastrophe to afflict F1, namely exhaust noise...

*Current (unconfirmed) shareholding structure of Delta Topco, 
holding entity of the Formula One Group:

CVC Capital Partners              35.5 per cent
Waddell & Reed                    20.9 per cent
Lehman Brothers                   12.3 per cent
Bambino Holdings                  8.5 per cent
Bernie Ecclestone                 5.3 per cent
Government of Norway (Norges)     4.5 per cent
JP Morgan Whitefriars             3.0 per cent
Texas Teachers Pension Fund       3.0 per cent
BlackRock                         2.4 per cent
Churchill Capital                 0.7 per cent
Free float of several individuals 3.9 per cent