The Weekly Grapevine

Vodafone and the future

The story rated only a couple of paragraphs in London's Financial Mail on Sunday and was missed by most of the Formula One media due to there being somewhat of an important race to attend in Bahrain, but, should the Mail's turn into a runner, the face of the sport's commercial relationships - team and series - could be changed forever.

According to FMOS, CVC Partners and fellow capital venture group Apax Partners Limited have made an 'audacious' bid to purchase Vodafone, which recently issued a profits warning and alienated its former CEO and 'chairman-for-life' Sir Christopher Gent in the process, for a staggering US$180bn.

Britain's fifth-largest company, which enjoys the support of 123m directly-controlled customers on every inhabited continent - and probably some on Antarctica, too - could soon fall under the control of two venture capital company with exceedingly close links to the sport.

Intriguingly, Gent's replacement, Lord MacLaurin, steps down in June and is scheduled to be replaced by Sir John Bond, formerly head honcho with HSBC, and the man who took the bank into F1 with Jaguar Racing.

Sir John's refusal to commit HSBC beyond the original five-year deal which expired at end-2004 despite Ford Motor Company worldwide patronage of the institution contributed directly to Jaguar's withdrawal from the sport.

Venture capitalist companies exist, of course, to invest in beleaguered and/or undervalued operations, so their interest in the struggling mobile communications giant, which is desperately seeking to offload its Japanese and US subsidiaries, is entirely unremarkable when analyzed clinically in City or Wall Street terms.

But, given that all three parties - Vodafone, CVC and Apax - have recently made rather large commitments to World Championship motorsport, a positive outcome to the negotiations will almost certainly affect, in order, SLEC (the sport's commercial rights' holder), associated companies within the Formula One Group, Ferrari, McLaren, and, last but certainly not least, David Richard's ambition to enter Formula One on his own terms.

Whilst Vodafone needs little introduction, it is perhaps fitting to summarize the company's F1 involvement. Announced as partner to Ferrari in May 2001 at Monaco, with the five-year secondary sponsorship deal commencing the following season, Vodafone has remained remarkably loyal to F1 despite having its honour attacked by Eddie Jordan and Co., with the resulting litigation driving a rather large nail into a dark box containing the Irishman's final F1 ambitions.

Marbloro and Vodafone sponsorship on the Ferrari © LAT

Rumours suggest that Vodafone had been promised title sponsorship of Ferrari when the Italian team weaned itself off nicotine come October 2006 - as originally demanded by the FIA, before the sport's controlling body rather inexplicably rescinded the requirement.

Despite a voluntary agreement committing tobacco companies to exit the sport, agreed to by Philip Morris, Japan Tobacco and British American Tobacco in New York on, rather ironically, September 11 2001, Marlboro took the FIA's gap and extended its Ferrari partnership through to 2011, in the process doubling its sponsorship to at least $150m per annum.

Vodafone, a responsible corporate citizen with no further wish to have its global marketing programmes tarnished by association with 'the weed', was thus left high and dry with no outlet for its new 3G mobile technology with which it had intended bringing Ferrari news, visuals and mobile television broadcasts.

Thus it agreed an extendable five-year deal, commencing in 2007, with McLaren at a rumoured $50m per year with annual 10% escalators.

To help bolster the team's 2006 coffers, McLaren agreed a short-term arrangement with Emirates airline - said by a Emirates source to have been offered at bargain basement rates - which rather conveniently fills some uncannily red looking spots until come 2007's opening race. And, an important aspect of the McLaren/Vodafone relationship is said to be the inclusion of 3G rights to McLaren's efforts. More on this aspect shortly...

However, returning to the matter directly in hand: on 25 November CVC Partners announced it had floated a new company, Alpha Prema after purchasing Bayerische Landesbank's 47% holding of SLEC and Bernie/Slavica Ecclestone's Bambino Holdings (25%), and hoped to acquire the outstanding 28% owned in equal parts by JP Morgan and Lehman Brothers.

Within a fortnight CVC had acquired Morgan's 14%, with Lehman's retaining its share for the moment. The future ownership of this share block could become of fundamental importance to the future governance of F1, but is not relevant here in the greater context under discussion.

What is salient, though, is that CVC's Donald McKenzie - who was an interested onlooker in Bahrain - will be joined on the board of Alpha Prema by Ecclestone as CEO of the newly registered company, and Bayerische's Gerhard Gribowsky, who is widely expected to cross the floor, and a director appointed by Bambino Holdings, which has agreed to re-invest a portion of the proceeds of the sale in Alpha Prema. CVC Partners will, though, hold a slender majority, making the destiny of Lehman's investment fundamental should one or other party wish to increase its involvement.

The whole deal is, of course, subject to EU consent, postponed from a February hearing to March 21 - the very day entries open for the 2008 FIA Formula One World Championship to be run under an extended, but substantially revised Concorde Agreement, which should result in teams receiving larger slices of F1's media rights. Perhaps not totally co-incidentally these revenues will, for the first time, include income generated by 3G race broadcasts to mobile telephones after Ecclestone recently offered these to the highest bidder.

Should, though, the takeover of Vodafone by CVC/Apax come to fruition, will Bond still take over as chairman; will he seek 'break' clauses in the McLaren contract after having been less than enamoured with F1 last time round? Then, would CVC willingly permit Alpha Prema to award F1's 3G rights to an opposition network, even assuming the EU gives its go-aheads? And, should CVC, or, more accurately, Alpha Prema, favour its 'in-house' partner in this regard, how long before the opposition reacts with a quick call to Brussels?

There is another consideration in this equation: leverage by CVC against McLaren. The magnitude of Vodafone's sponsorship deal with Ron Dennis' team makes it amongst the largest, if not the largest, non-tobacco deal in the history of the sport - assuming, of course, that Bond does not pull the plug.

Under the circumstances, history may be semi-repeating itself: in the early eighties Ron Dennis assumed control of McLaren after, ironically, Philip Morris pressured the team's then-underperforming management into accepting a buy-out.

There is no suggestion that Dennis is underperforming - quite the opposite, in fact - but if a previous sponsor of the team could force a change of management at McLaren, could not a new sponsor influence policies?

Thus, could Vodafone be persuaded to 'pressure' McLaren, for so long a staunch subscriber to GPMA via Mercedes shareholding, into accepting whatever commercial terms 'Big Brother' Alpha Prema may deem appropriate at any given point in time. Stranger things have happened in F1 negotiations, and such 'networking' antics would not be beyond the realms of possibility.

Luca di Montezemolo and Bernie Ecclestone © LAT

Apax Partners entered motorsport just over five years ago after purchasing 49% of Prodrive from Richards, then extended its FIA links through partnering the entrepreneur in his acquisition of International Sportsworld Communicators, holder of world rallying's commercial and broadcast rights, from Ecclestone after an EU commission ruled that F1's czar was in breach of monopolistic practice by controlling more than one motor-sporting genre.

And, the first thing Apax did when the WRC rights were acquired was push its Inmarsat company into a title sponsorship role. What price Vodafone becoming title sponsor for the Formula One World Championship should the takeover proceed?

When Prodrive agreed a three-year management contract with BAR-Honda, during which the struggling team was propelled from also-ran to second in the championship by Richards, Apax received further insight into the world of motorsport, particularly as various approaches were made to Vodafone by BAR under Richards' tenure. It is inconceivable that Apax, despite being fundamentally a silent partner to Richards' management efforts, was not, at the very least, kept appraised of developments in this regard.

Three weeks ago, this column speculated on Prodrive and Richards entering F1 in their own right and on their own terms, and, of course, these ambitions would heavily involve Apax and possibly some of the telecoms and consumer-orientated companies controlled by the venture capitalist.

Since then, Richards' has admitted that such a move was more than a remote possibility, all of which would make Apax a 49% partner in Prodrive's F1 effort whilst being particularly close to CVC and, by extension, Alpha Prema. Imagine Apax owning 50% of Vodafone - Ferrari's present secondary sponsor, and McLaren's future title partner; imagine the leverage...

The big take-over story during the Bahraini Grand Prix weekend was Ecclestone interested in purchasing 11% of Ferrari after Mediobanca, who bought into Maranello four years ago when Fiat held the first of a few fire sales, admitted seeking an exit. Ecclestone told the Italian media such a deal was on the cards - if the price was right. "Yes, it interests me, I have always loved Ferrari, its history and Enzo Ferrari," he said.

That story got conspiracy theorists all fired up and led to suggestions of all manner of preferential deals and concessions for Maranello.

These, though, overlooked totally that, should F1's matters go CVC's way in Brussels early next week and should Ecclestone acquire Mediabanca' slice of Maranello, he will still be a minority shareholder in both Ferrari and Alpha Prema (unless he acquires Lehman's shares), and thus unlikely to jeopardize one for the other.

CVC and Apax, though, will hold greater whips hands through their ownership of the sport and a team respectively, and their control of one of the largest sponsors in history.

How it all pans out will, of course, depend heavily upon the EU's ruling, expected in a little over a week. Should rumours of CVC/Apax's 'audacious' bid mutate into fact, the EU will no doubt intervene and include the F1 angle in its considerations. Seems F1 will be keeping Brussels increasingly busy for a few months to come...

Peace is near, at last

Last week this column speculated, quite correctly as it turned out, that peace between the FIA, SLEC and GPMA members would not break out in Bahrain.

A meeting lasting well-nigh four hours was attended by all parties on Saturday evening, and, by many accounts, the mood was far from harmonious. Despite that, progress towards reaching a settlement was made, and all parties were hopeful that a solution would be found by the time this weekend's Malaysian Grand Prix has runs its 56 laps. And, for once, this column sincerely believes that a solution is closer than at any stage since the introduction of the present Concorde Agreement in 1998.

Why so? Simply because the FIA, which, after all, owns the rights to the Formula One World Championship, put a deadline on the matter by decreeing that entries for the 2008-onwards series will open on 21 March, closing ten days later.

And, with Melbourne's race scheduled for 2 April, and 31 March being the preceding Friday, Malaysia's race marks the last realistic chance for all affected parties to agree terms which will take the sport forward in the 21st Century. The alternative is too ghastly to contemplate, and at last, it seems, team bosses have taken that view, too.

Ron Dennis in the Bahrain Grand Prix Friday Press Conference © LAT

The biggest give-away that settlement is near came from Ron Dennis, whose past run-ins with both Bernie Ecclestone and Max Mosley have included serious threats of legal action. When asked what plans of action McLaren (specifically) and GPMA members (generally) had formulated to cater for the very real possibility that no settlement had been agreed by the entry cut-off date, the McLaren boss admitted that, although such a scenario was entirely possible, he believed strongly that peace would be brokered by the cut-off date, and thus no contingency planning was in place.

This from a man known to cover every one of his not inconsiderable bases not once or twice, but thrice; whose meticulous preparations for every situation have in the past left him open to accusations of over-preparedness and ?zealousness; who has oft admitted to 'planning for all the things that can go wrong'. Under such circumstances, Dennis' confidence that a solution will be found sooner rather than later shouts volumes in comparison with the hopeful utterances made by some of paddock peers that peace is near.

The deal-maker (breaker?) is said to be the FIA's insistence upon standardized electronic control units come 2008. The GPMA is hopeful of retaining an element of technological freedom for its members ? all of whom are motor manufacturers - whilst FIA President Max Mosley aims to control their power units absolutely, and what more logical way of doing so than by the hi-jacking of their 'brains'?

It is inconceivable that both parties will remain intransigent when so much hinges on so little, and the word in Bahrain was that a settlement would be announced in Malaysia this weekend. A Memorandum of Agreement already exists; to permit it to go the way of the last one (in 2002) would be downright criminal. Then Formula One had time to spare and waste; now it has absolutely none.