There were reports at the end of last week that CVC Capital Partners is close to
a deal to sell the Formula One group to John Malone's Liberty Media, in a deal
that would value the business at $8.5 billion. The stories were detailed but the fact
that they were appearing before any deal is struck suggests that the leak has been
deliberate - and that there was a clear purpose behind it. The only obvious reason
for anyone to leak details of a deal is if they are trying to make sure it does NOT
happen. The deal would, it seems, be a very complex one because Liberty, despite
being a big corporate entity, is not in a position to fund such a big transaction.
Malone's various holdings are a complicated network of inter-related companies.
Liberty Media, for example, owns nearly 40 percent of Charter Communications,
a company which only a few months ago completed a $78 billion takeover of Time
Warner Cable.
There is also some talk about another Malone-controlled firm, Liberty
Global, bidding for shares in Formula One, but the primary suggestion is that the
Liberty Media bid would involve the parent company, which is listed on the NASDAQ
stock exchange in New York, buying a minority stake in the F1 business, which would
avoid regulatory problems, and would then complete the deal once the regulators had
agreed to let it go ahead. In the end, the Formula One company would be absorbed
into Liberty Media, which owns other sports assets, including the Atlanta Braves
baseball team and Sirius XM, the satellite radio group. Once that was down, the entire
firm would then change its name to reflect the F1 takeover.
The suggestion is that if the deal was to go ahead, the chairman of the new board would be 62-year-old Fox executive Chase Carey, a long-time employee of Rupert Murdoch, who left the News
Corporation empire for a period between 2006 and 2009, to work for Malone, after
he took over the DirecTV business. Carey has been seen in recent years as a possible
replacement for Murdoch, but it seems that the new generation of Murdoch kids does
not seem to think they require help and so Carey is believed to be shopping around
for a big new job in the media business. There is no doubt that Liberty is keen to get
control of Formula One and its CEO Greg Maffei is very keen on the sport.
However, leaking the possible deal to the media suggests that someone somewhere
does not want this to happen and there are lots of rumours of other bidders, such as
Murdoch's Sky plc and Silver Lake Partners, a private equity firm which owns sports
marketing firm IMG and the Ultimate Fighting Championship, along with shares in
various technology companies such as Dell and EMC.
There is still believed to be
a bid from Stephen Ross, but there is also speculation that CVC and/or elements
within its management may want to acquire the business from the original investors
and keep on earning. Indeed, it could be that a new consortium including CVC in a
minority position, could take over with some of the current owners staying on
with smaller stakes. Control of this could even be taken by CVC co-founder
and chairman Donald Mackenzie (left) who is coming up to retirement
but has developed a taste for the returns and lifestyle that F1 offers. This
sort of deal has led to speculation that the arrangement might include
a new investment fund that CVC owns in league with Singapore’s
sovereign wealth fund GIC, which is also a part-owner of CVC.
Among the possible investors rumoured is a Qatar government firm,
which is keen to use sport to promote its country. It should also be
noted that CVC is raising a new European fund for 2017, aiming to
collect $14.1 billion, which would be used for long-term investments
of around 15 years. It could be that some of the CVC partners want to
get out of F1 and want to go for the Malone deal, while others want to
stay involved, if only partially under new leadership. Mackenzie has no
idea how to run the F1 business and so has relied heavily of Bernie
Ecclestone, but the soon-to-be 86-year-old, who is also still a
shareholder, shows no signs of wanting to give up his control of
the empire, although the manufacturers involved in the sport are
not going to make it easy for that to happen, as they want more
of the money raised to go to the competitors and would pressure
16 - 33 the new owners to offer them more.
They also want more transparency and better governance so that they can attract more money from sponsors and there is a desireto stop the drift to pay-TV, as this is reducing the overall F1 audience. The options are for a different business model, with direct-to-consumer TV feeds, which could create
vast new revenues, multiples of the TV deals that are around today. This would mean
that there would be less of a need to screw money out of race promoters and thus
the opportunity to lower ticket prices are thus attract more fans and find ways to sell
them more F1-related merchandise. The current business model means that most of
the races are now government-funded and so ticket prices remain high because the
politicians want to recoup as much money as possible. The current F1 business model
is also not at all helpful when it comes to social media, which means that the young
of today are being turned off the sport because of its failure to engage with them.
Source: JSMB Newsletter
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