John Malone to Purchase Minority Stake In F1 (4th Update)
 |
| John Malone |
The Royal Bank of Scotland and Goldman Sachs could block plans for a takeover of Formula One by Liberty Media.
Last week, it emerged that the American billionaire John Malone’s media company had teamed up with Discovery Communications to consider mounting a bid for F1’s parent company, Delta Topco.
The two businesses are understood to have requested financial information about F1 from the private equity firm, CVC, which controls the sport through owning a 35pc stake in Delta Topco.
CVC paid $2bn for F1 in 2006 using two loans – $965.6m from its investment Fund IV and $1.1bn from RBS. The debt has been refinanced several times since then and currently stands at just under $2.5bn (£1.5bn). One of its covenants stipulates that default will occur if any shareholder, other than CVC, gains more than 50.1pc control of the business.
It states that “under the Senior Facilities Agreement, a change of control occurs only if another party has more than 50.1pc of the voting rights exercisable in a general meeting of the Company".
A change of control is “an event of default under the Senior Facilities Agreement," the covenant continues. “[That] entitles the lenders to, among other things, cancel the Senior Debt Facilities."
The debt is secured on the shares and assets of almost all the key F1 companies, so defaulting on it could ultimately lead to the sport ending up in the banks’ hands.
CVC has put measures in place to prevent it from being forced into this position by its co-shareholders – combining their stakes to form a group with more than 50.1pc.
F1’s minority shareholders include its management and chief executive, Bernie Ecclestone, his Bambino family trust and three money managers – BlackRock, Waddell & Reed and Norges, the investment division of Norway’s central bank.
However, if any of them wants to sell, not only does CVC have to give approval but it also has the right of first refusal.
It is possible that F1’s lenders could agree to waive their change of control provision, but there is no guarantee they would do this. Likewise, there is no evidence that CVC is interested in that CVC is interested in selling a significant portion of its stake.
A source close to the situation said that “there are no real discussions with Liberty and nothing is imminent anyway".
CVC planned to reduce its stake to 30pc through an initial public offering on the Singapore stock exchange in 2012, but the eurozone crisis put the brakes on this.
Instead, it sold a 7pc stake to Waddell & Reed for $500m which gave F1 an enterprise value of $9.1bn and drove CVC’s return from the sport to more than 350pc. Telegraph
02/07/14 Tongues have certainly been wagging following the recent news that Formula One boss Bernie Ecclestone says he doesn't know anything about a bid for F1's parent company Delta Topco by media firms Liberty Global and Discovery Communications. One of the most entertaining reports said that even if a sale took place it would "not necessarily mean that a buyer would actually control the Formula One empire because this appears to influenced by a parallel company called Delta Prefco, which has some of the same shareholders as Delta Topco." In fact, this is far from the case because Delta Prefco does not even exist.
To recap, recent reports suggested that Liberty and Discovery are considering buying a 49% stake in Delta Topco from its largest shareholder, the private equity firm CVC. As Pitpass pointed out, Ecclestone said he had "never heard anything about" the rumored deal and, perhaps more pertinently, CVC doesn't have 49% to sell as it only owns a 35% stake.
Between them, Liberty and Discovery own stakes in the British Virgin Media cable company and the EuroSport television station. It explains why talk of a takeover sparked reports that it could lead to F1 being dropped from Sky in the UK, particularly since 39.1% of it is owned by beleaguered media mogul Rupert Murdoch who is a longstanding rival of Liberty's founder John Malone. However, according to one report, a buyout wouldn't give Liberty the power to change channels for F1.
This brings us back to Delta Prefco as the report claims that the investors in it "get a different (and preferential) deal to those involved in Topco. It is understood that rather than getting a dividend based on annual profits, Prefco shareholders get pre-determined sums. In exchange for this benefit, the Prefco shareholders seem to have agreed to allow Bernie Ecclestone to have the right to veto all Delta Prefco decisions if he chooses to do so, so the acquisition of the Topco shares would not necessarily give a buyer control of the empire and purchasing the golden share from Ecclestone would, no doubt, be wildly expensive, unless there was a way in which it could be annulled."
In summary, the allegation is that even if Liberty and Discovery bought 49% of F1's parent company Delta Topco, it would not have control of the sport because that is vested in Delta Prefco and, in particular, in Ecclestone himself through his supposed "golden share" in it. It certainly sounds interesting but it couldn't be much further from the truth.
You won't find much information about Delta Prefco online. At the time of writing, typing it into Google yielded just 755 results with this Pitpass article at the top of the list. Our article said that Ecclestone has just one share in Delta Prefco and suggested that F1's Investment and Shareholders' Agreement could confer special rights, essentially making it a "golden share." Clearly, the author of the recent report read our piece which was printed in 2011 but doesn't seem to have done adequate research about Delta Prefco since then.
It's easy to get confused about the business of F1 as it is an incredibly complex field and similarly named companies abound. It is especially easy to make errors if facts aren't checked before they are printed. Articles in newspapers are read by editors, deputy editors, sub editors and lawyers before being printed but the piece in question appeared on a blog. It shows what can happen if the necessary checks and balances are not in place.
There may not be much about Delta Prefco online but there is one crucial piece of information. It can be found on the following link which shows in big red capital letters at the top of the page that "the entity is Dissolved."
You don't have to be a genius to find this out but you do need to have a habit of checking your facts. Anyone can do it. All you need to do is go on the website of the UK companies registry (companieshouse.gov.uk) then scroll to the bottom of the page and click on 'links'. From there you click on 'Jersey' as it is no secret that the F1 parent companies are based there.
That takes you to the Jersey companies registry where you can click on the tab marked 'Registry' which takes you to a page with another tab marked 'Easy company registry and search'. Hovering over that brings up the option marked 'company search' which, unsurprisingly, brings up a search page. Typing Delta Prefco into the search box eventually brings up the page which shows that the company was dissolved way back on 31 May 2012.
Seasoned F1 business analysts will immediately know the significance of that date as it pretty much coincides with when F1 was due to float on the Singapore stock exchange. Indeed, its preliminary flotation prospectus was dated 21 May 2012 and it is no accident that Delta Prefco was closed ten days later.
As Pitpass revealed in 2011 although CVC only has a 35% stake in Delta Topco, it controls the company. This is because its directors, who are known as I-Directors, have the power to outvote anyone else on the board of the company. It is another term which is outlined in the Investment and Shareholders' Agreement and when F1 eventually floats this document will be torn up. It will mean that board decisions are passed by a majority vote is what public shareholders would expect.
Likewise, closing Delta Prefco was part of this corporate housekeeping plan and it is understood that because dissolving a company takes a little longer than tearing up the shareholders' agreement, it was put into motion before the float was due to take place. This would explain why the Investment and Shareholders' Agreement, and CVC's I-Director powers which come with it, are still in place yet Delta Prefco was closed even though F1 did not float.
The bottom line is that Liberty and Discovery certainly don't need to buy Delta Prefco to gain control of F1 as it no longer exists. The important point to draw from this is that only way to get control of F1 is to acquire a stake of more than 50% in Delta Topco and get CVC to agree to waive its I-Director powers in the Investment and Shareholders' Agreement. That's no mean feat. Pitpass.com
02/04/14 Financial rumors are always to be treated with care because one never knows why the news is being leaked and who gains the most from such leaks. Quite often such stories are not at all what they seem to be. The word, however, is that US media billionaire John Malone, who is in the middle of a major expansion into European markets, is looking to buy control of Delta Topco, the parent company of the Formula One group, in order to be in a position to decide which TV channels would be buying the media rights to F1 racing, so as to either boost the revenues of other companies in his empire, or to charge his rivals more for the same privilege.
In recent months Malone has bought British cable company Virgin Media, which added 25 million customers in 12 European countries, plus the Dutch cable company Ziggo, Belgium’s Telenet, Germany’s Unitymedia and, in the last couple of days, Eurosport, of which he now controls 51 percent with a put option to acquire the remaining 49 percent. A put option gives the owner (Eurosport in this case) the right, but not the obligation, to sell the shares at a specified price on a specified date.
The goal of all of these moves is to create growth for his companies by acquiring new programming and new channels.
The word is that he wants to acquire the Formula One shares currently controlled by CVC Capital Partners, which wants to cash out in F1 because its plans for a stock market flotation have been blocked by the legal troubles surrounding F1 boss Bernie Ecclestone.
It is entirely possible that such stories may have been leaked to try to inflate the value of the Formula One group for another buyer as rumored $9 billion price tag seems rather high in the circumstances. CVC bought control of the Formula One group for a fraction of that and has taken a great deal of money out of the sport, in terms of dividends and loans.
There is clearly an opportunity coming up for a change as another Formula One shareholder called LBI Group Inc, an entity which exists only to sell off the remaining assets of the defunct Lehmann Brothers, in order to generate as much money as possible for creditors, has said that it will sell its 12.3 percent share by the end of June, or hand over the equivalent money. If CVC Capital Partners adds its own 35.5 percent to the deal that will be close to the figure needed to buy a majority of the ordinary shares. There are other investors who would probably cash in as well (and may have to do so with tag-along, drag-along rights). CVC is believed to have some kind of veto over the sale of the LBI Group Inc shares, which means that it would buy the stock and then sell a bigger stake to a buyer.
However, this does not necessarily mean that a buyer would actually control the Formula One empire because this appears to influenced by a parallel company called Delta Prefco, which has some of the same shareholders as Delta Topco. These investors get a different (and preferential) deal to those involved in Topco. It is understood that rather than getting a dividend based on annual profits, Prefco shareholders get pre-determined sums. In exchange for this benefit, the Prefco shareholders seem to have agreed to allow Bernie Ecclestone to have the right to veto all Delta Prefco decisions if he chooses to do so, so the acquisition of the Topco shares would not necessarily give a buyer control of the empire and purchasing the golden share from Ecclestone would, no doubt, be wildly expensive, unless there was a way in which it could be annulled. Much of this is information is covered by confidentiality agreements so it is hard to know exactly what is going on.
The last sale of shares in Delta Topco was in October 2012 and this valued the business at $6.6 billion. That deal was for three percent, which had been held by LBI Group Inc, which was acquired by the Teachers Retirement System of Texas (TRS) for $200 million. The Formula One group had previously been valued at $7.6 billion after CVC offloaded 21 percent of the business in May 2012 for $1.6 billion.
It is hard to imagine that Malone would want to buy the company just as a financial investment, as the private equity and pension fund people do. He is more interested in exploiting the media rights to the sport in a different way. Joe Saward
02/04/14 (GMM) US media companies Liberty and Discovery have moved to buy a major stake in formula one from CVC, according to reports.
The New York Post said the bid is headed by John Malone, but Reuters and the Telegraph said the talks about a 49 per cent sale are only at an early stage.
Writing in the Telegraph, journalists Katherine Rushton and Christian Sylt said the bid is in direct competition with News Corp's Rupert Murdoch, who in 2011 was reported to be interested in buying the sport.
CVC would not comment, but F1 chief executive Bernie Ecclestone said he was not specifically aware of the Malone bid.
"You've got all these people that buy and sell companies, like people that buy and sell anything," he said.
"They always think that somebody who wants to sell is in trouble. They think they (CVC) are in trouble."
02/03/14 Liberty Media Chair John Malone is working through his company "to buy a large minority stake in the firm that owns Formula One racing," according to Claire Atkinson of the N.Y. POST. Sources said that Liberty Global and Discovery Communications "are working alongside Liberty Media to purchase as much as 49 percent of Formula One Group from private equity powerhouse CVC Capital."
While the talks are "in the early stages and could eventually fall apart, the purchase of the global open-wheel racing circuit would put Malone on the other side of the table when it comes to sports rights fees."
Sources said that Formula One Group "is valued at between" $7-8B. A source said F1 "could be used to drive" Eurosport, as Discovery last month announced that it was increasing its stake in Eurosport from 21% to 51%. Malone controls 29% "of the voting power" at Discovery. Liberty Media also owns the Braves. N.Y. POST