The US-based Liberty Media consortium is set to be announced as Formula 1’s new majority owner in a matter of days after reportedly agreeing to terms to buy CVC Capital Partners’ shareholding.
The transaction will value the sport at approximately US$8.5 billion, although the dollars being exchanged will be significantly less on account of the debts that CVC Capital has incurred and which, no doubt, will be replaced by the borrowings that Liberty Media will have had to make to fund the purchase.
The company, headed by businessman John Malone, is an empire that owns a number of media, telecommunications and entertainment businesses. Liberty Media is understood to have agreed to terms to purchase an initial 20% stake before acquiring full control later this year.
The initial phase of the sale will see CVC Capital Partners’ 35.5% stake transferred to Liberty Media. Subsequently, it is also believed that a number of smaller shareholders’ stakes – many on ‘drag-along or tag-along’ agreements – will follow suit as they are bound to the movements of CVC.
The sport’s smaller shareholders include financial firms Waddell & Reed (20.9%), Norges Bank (4.5%), the Teachers’ Retirement System of Texas (4.5%), JP Morgan Whitefriars (3.0%) and Black Rock (2.6%).
Even the estate of Lehman Brothers, the US bank whose collapse triggered the Global Financial Crisis of 2008-9, holds a 12% slice of Formula 1 – such is the profitability of the sport for its shareholders that administrators elected to keep the shares to help pay off the bank’s debts.
Formula 1 supremo Bernie Ecclestone has a 5.3% stake, while the Ecclestone Family trust funds have 8.5%. Other shareholders include Churchill Capital (0.7%) and the FIA (1%), with the latter having to sell its stake as it sold its soul to CVC.
CVC Capital Partners purchased a 70% stake in Formula 1 in 2006 for around $1.7 billion and has easily more than doubled its money through the dividends it has taken from the sport.
The private equity firm has been an ever-more-frequent target of criticism from inside Formula 1 for how it has strip-mined profits and laden the sport with debt, all the while overseeing the financial collapse of several teams and the loss of millions of TV viewers as it sold its broadcasting rights to pay TV networks.
Perhaps the biggest question in all of this is what happens to Bernie Ecclestone. While the soon-to-be 86-year-old has indicated he will maintain a key role in the sport, there are also reports that Libert Media will install Chase Carey, a key lieutenant of Rupert Murdoch at News Corporation and a non-executive director of Sky, as the new chairman of Formula One.
Keeping Ecclestone on board would be a potentially wise move for the sport’s new owners, who will shortly have to start negotiating a new commercial contract with the teams for 2020 and beyond. How it goes about doing so – both in contrast to CVC’s historically ruthless approach and with whom it appoints to lead the effort – will be one of the biggest game-changers in the sport’s history.
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