The race for ownership of F1

Once again the sale of Formula 1's commercial rights is in the news, what with the Daily Express - to which Bernie Ecclestone has an inside line - in the build-up to the British Grand Prix weekend suggesting the sport's beleaguered ringmaster could purchase back the rights that he originally acquired on behalf of his family at a bargain basement price, and subsequently resold thrice over.

Following Ecclestone's strident criticism of F1 2014-style this writer originally concluded that a buy-back could be on the cards, and that Ecclestone was simply suppressing the price through his somewhat bewildering comments. After all, whoever heard of a CEO so publicly criticising his own show?

However, the story brought swift denials via media members close to Ecclestone - and again there was a grain of logic: who, after all, would wish to purchase into a company with as many product flaws as he maintained F1 currently had?

Thus it was rather mystifying to read that Ecclestone could again control F1's rights in his personal capacity as opposed to being a hired hand operating on behalf of current majority owner CVC Capital Partners. What could lie behind this volte-face?

Ecclestone and Donald MacKenzie, who led negotiations when CVC bought a stake in F1 © LAT

Still, the news caused paddock chatter to hit overdrive - even if said interview was allegedly conducted a fortnight earlier - and many wondered whether the interview had been planted, being linked to CVC's threats of dismissing Ecclestone should the verdict in Munich, where he is fighting charges of embezzlement, go against him. One cannot, after all, be fired if one owns the company regardless of judicial outcome...

However, given that a number of potential purchasers have recently emerged, could buy-back talks form part of a master strategy from the seasoned negotiator, one aimed at inflating the stock price by increasing the (perceived) pool of interested parties?

With Ecclestone personally holding 5.3 per cent and his family's Bambino Trust controlling 8.5 per cent, even a 10 per cent premium on a multi-billion dollar sale would keep both his rather extravagant daughters in gold-plate tapped mansions and expensive shoes for many years to come.

CVC's modus operandi has long followed a strategy of acquire (usually via leveraged loans), restructure, sell-off (a portion), list (the remainder). Samsonite luggage, German chemical giant Evonik and Belgium's B-Post provide three lucrative examples of this approach; CVC's record is, though, equally littered with abject failures.

Traditionally the entire cycle, from stock acquisition through Initial Purchase Offer, takes seven to 10 years. However, CVC's F1 IPO plans were twice scuppered: first by a bearish stock-market climate, then by confirmation that Ecclestone would indeed be charged by Munich prosecutors for his alleged role in the Gerhard Gribkowsky affair.

This matter saw the former German banker, charged with responsibility for state-owned Bayern Landesbank's former 47 per cent in F1's rights, jailed for eight years for embezzlement. He implicated Ecclestone, who, the German alleges, bribed him to facilitate the sale of the banks' stock to CVC.

CVC bought a controlling interest in F1 in 2005 © XPB

Ecclestone does not deny having paid Gribkowsky over $40 million in a blow-counter transaction, stating instead that said amount was a pay-off after Gribkowsky "shook him down" over his tax affairs. However, there is likely a third side to this rather unsavoury affair: the truth.

Still, resultant publicity gave CVC the jitters, for such companies rely heavily on two factors, namely unsullied reputations and above-norm returns on investment for their clients, in this case such as the Teacher Retirement System of Texas and California Public Employees' Retirement System.

It does not require Einstein levels of genius to imagine how such institutions feel being linked - no matter how tenuously - to the Munich matter and others, such as Constantin Media's civil case brought in London, which was, though, successfully defended although Ecclestone's reputation received a severe mauling from the bench.

Thus, when the IPOs were aborted, CVC sold off chunks to funds such as Blackstone, Norway's sovereign wealth fund Norges and Waddell & Reed Inc. However, a number of plausible suitors for various tranches of shares have recently emerged, particularly the 35.5 per cent still held by CVC.

There is also the 15 per cent holding vested in the administrators of Lehman Brothers - which shares were, according to British national media reports, due to be disposed by June 30th, although the deadline seems to be somewhat elastic, being governed by internal agreements with overriding profit motives. That the shares will be sold at some stage is a given; it is simply a matter of time.

With CVC acquiring its slice of F1 action in 2005 - the deal finally gained EU Commission approval in March 2006 - its 10-year window closes within the next 18 months or so, for institutional investors will be looking to their returns. The longer the period, the lower the average annual return unless F1 explodes massively - unlikely given that TV audiences are dropping - so expect CVC to exit within two years.

Could media outlets be poised to take a stake in the sport? © XPB

That means that, together with Lehman's holding, over 50 per cent of F1's commercial rights could hit the market shortly - providing a composite purchaser with crucial control. CVC currently has control despite its less-than-50-per-cent holding on account of the share structure and covenants of Delta Topco, the holding company.

According to a comprehensive report in the Business section of the latest Sunday Times, CVC has now placed its F1 holding on the "auction block, [with] media companies itching to get involved". The report further states that US billionaire media mogul John Malone's Liberty Global, which last year acquired Virgin Media, is in "pole position" to acquire CVC's stock. Apparently the parties are haggling over "the final $500m"...

In the Express interview Ecclestone conceded that there were "one or two other companies" in the running, with the Times report suggesting that Rupert Murdoch's BSkyB satellite service, planning to add Sky Deutschland and Sky Italia to its British operation in a complex deal involving Fox, could be a prospect. All four offer F1 programming, so synergies certainly exist.

Then, forget not that the Times is Murdoch's flagship newspaper with an inside line on most of the Australian's dealings.

Fashion entrepreneur Lawrence Stroll is said to be keen on acquiring (at least) Lehman's slice after the Ferrari-collecting Canadian, whose son Lance is member of the Scuderia's driver academy, accumulated billions via his Ralph Lauren, Tommy Hilfiger and Michael Kors franchises. The recent listing of the Kors brand alone added a billion dollars to his wealth, which includes the classic Mont Tremblant race circuit.

Thus there is no shortage of tyre kickers for F1's commercial rights, prompting only the question: "Is there a deterring factor, given that no deal has been struck despite CVC wanting out and (at least) three wanting in?"

Ecclestone remains tight-lipped about the future of his 5.3pc stake in F1 © LAT

Ecclestone's escalating travails are heaping further pressure on CVC to divest. Just this week he and two companies linked to him were named by Italian newspaper Il Giornal in a report on Italian police investigations into Monza's (allegedly) missing millions, while at least two court cases in as many jurisdictions are said to be pending, subject to the Munich verdict.

Just as his omnipresence is an enormous profit spinner, having helped CVC to profit by no less than $4bn (£2.5bn) from its F1 investment, so his continued leadership of the sport had gradually become a hindrance to any share sale - hence CVC's indulgence to date in keeping the 83-year-old at the helm of its highest-profile activity.

All of which gave rise to the latest suggestion from two senior paddock figures in Silverstone that, far from planning to buy back F1's commercial rights, CVC were in fact negotiating to buy Ecclestone's shares, and possibly those of the family trust.

Such a deal would provide CVC with an additional 13.8 per cent, bringing its level to 49.3 per cent - on the cusp of undisputed control even without Lehman's tranche - enabling a sale to be struck without the obstacle of baggage carried over from the previous regime.

One paddock source is adamant that a deal was tabled and that Ecclestone is - as expected - haggling over the price of his 5.3 per cent (said to have been awarded by CVC as golden welcome in 2006, and therefore at the mercy of the fund should Munich go against him), and that his Express interview with a trusted journalist is none other than a negotiating ploy.

If all this fails CVC would still have the option of hitting the stock exchange at short notice, for its brochure, prepared for the original listing, would require little amendment and the markets are certainly less volatile than three years ago. However, to ensure an untainted flotation, CVC would likely appoint another CEO - bringing Ecclestone's 5.3 per cent into question - but that is a story for another day.

All things considered, it seems F1 faces a change of ownership this year, likely even before the judge sitting in Munich's Nymphenburger Strasse bangs his gavel in late September. Media moguls, fashion entrepreneur or the wily ringmaster himself? Time will tell...