09/05/2011
NEWS STORY
Last week Pitpass revealed why the Exor investment fund, which ultimately owns a stake in Ferrari, is likely to want the world to believe that it may bid for F1 with Rupert Murdoch's News Corp media empire.
We won't go over it all again but in a nutshell, it is down to the Concorde Agreement negotiations and, in specific, clauses 4.5 a) and b) of the current draft which currently prevent the teams from publicising or developing that mythical beast of a rival series which they use as a threat to get more money from F1. Of course since Exor is sufficiently distanced from Ferrari it could get stuck in with this kind of rival series (or even F1 takeover) talk and if anyone thought we were on the wrong track, just one day after our report, Ferrari team principal Stefano Domenicali had a thing or two to say.
Speaking to Gazzetta dello Sport, Domenicali said "at the moment everything is calm, but soon something will happen...From the commercial point of view we need to clarify the following points: who will be involved in the talks? I mean which teams and constructors want to stay and which want to enter F1? And who is responsible for the show? A marketing partner is needed. It can be [F1's majority owner] CVC once more, but it must invest in F1 and develop." It sounded just like veiled support for Exor's phantom bid.
It is clear what Exor (specifically through its investment in Ferrari) would have to gain by being publicly linked to a bid with F1 but what about News Corp? Pitpass' promised to tell readers and the details come courtesy of an article written by our business editor Chris Sylt in today's Guardian.
First a tiny bit of a chronology. Late on Tuesday last week Exor and News Corp released a very tenuous statement saying that they are planning a bid for F1 which may never become a bid. A few hours later CVC announced that News Corp had informally approached it about buying F1 and it had been told that is not for sale. Clearly the approach from News Corp was not made in the evening after it released its statement with Exor. CVC itself would not have had time to release its own statement if that had been the case.
So, to summarise, News Corp approached CVC and was told that "Formula 1 is privately owned by CVC and not currently for sale." News Corp and Exor then released a statement saying that regardless, "over the coming weeks and months, Exor and News Corporation will approach potential minority partners and key stakeholders in the sport."
Stakeholders in F1 generally refers to the teams and circuits. With a few exceptions, the latter carry little sway when it comes to takeover talk so presumably Exor and News Corp were not referring to circuits. Accordingly, it looks like News Corp and Exor were referring to the teams when they said that they will approach "key stakeholders in the sport" over the coming weeks. Let's not forget that this comment (the entire statement indeed) from Exor and News Corp followed CVC telling it that F1 is not for sale. News Corp and Exor may think that it sounds like a good bit of sabre rattling to say that they will approach "minority partners and key stakeholders in the sport" anyway but in fact it is futile.
The biggest threat that the teams can make to CVC is that they will leave the sport if they do not get their way (whatever that might be). So how could this benefit News Corp who, it seems from its statement, plans to approach them? Well, News Corp could guarantee the teams that if it owned F1 they would get more money from the sport than they currently receive. Perhaps News Corp might say it would even offer the teams shares in the sport if it bought it. But what could this really achieve?
If the teams, unified through FOTA, then approached CVC and threatened to leave F1 unless they sell to News Corp, CVC could easily dig its heels in and refuse knowing full well that News Corp is not going to invest in the creation of a rival series for them. Owning a sports series is already far removed from News Corp's core media business and its purpose certainly isn't to act as a venture capital firm for new sports series. It could offer to screen the rival series on its pay per view channels but, as many of the teams have already said, this is not what they want.
In a nutshell, the pressure on CVC from a possible bid from News Corp/Exor is just as phantom as the bid itself. It doesn't even stand up to scrutiny for Ferrari. If Exor thinks it is a clever tactic to imply that it will buy the series if Ferrari's prize money is not increased it has got another think coming. The easy way for CVC to deal with this would be to say to Exor that it will sell it F1 for example for 28 billion dollars (if it is only worth 7 billion) so that way Exor would lose far more money than it would gain through an increase in Ferrari's share of prize money.
The sabre rattling statement also may imply that the duo will approach minority shareholders in F1 when it says "Exor and News Corporation will approach potential minority partners." These comprise banks such as Lehman Brothers and JP Morgan, which has been reported to be an adviser to Exor and News Corp. However, as Sylt writes in today's Guardian, if News Corp and Exor were to try and buy out the minority shareholders in F1 they would be met with a roadblock.
The shareholders of F1's parent companies are all bound by an agreement which was signed on 24 November 2006. It gives CVC a veto over the sale of any of the other shareholders' stakes and it states that CVC has first refusal if they decide to sell. "The shareholders agreement gives us control in any event, as they cannot sell without first offering the shares to us and we must approve all and any transfers," says CVC's UK managing director Nick Clarry. This stops hostile investors, which are not endorsed by CVC, from building up an ownership position in F1.
CVC's own statement carries some evidence that News Corp and Exor were indeed suggesting they could approach the minority shareholders. CVC's statement said that "any investment in Formula 1 will require CVC's agreement." Specifically referring to "any investment" in F1 (as opposed to saying, for example, a majority investment) indicates that CVC was giving News Corp a hint that it cannot buy out the minorities without its consent.
Clearly if the News Corp and Exor statement is meant to suggest that they will approach the minority shareholders about buying their shares then the duo has either not done its research or it is trying to make it seem like they could still take over F1 even though CVC has told them it isn't for sale. We know why Exor might want to give out this impression but what about News Corp?
News Corp is currently trying to buy 61% of the shares in broadcaster BSkyB in which it already has a 39% stake. However, according to widespread media reports, News Corp is not happy about the price which is likely to be over £7.5bn. Another article in the Guardian claims that News Corp is prepared to walk away from the deal if the price keeps rising. It may not have to.
F1's boss Bernie Ecclestone told Sylt that he believes News Corp is using the possibility of an F1 bid as a front to secure investors for its acquisition of the 61% of BSkyB. Ecclestone says "they are trying to get some money together. If they find somebody who has come up with a few billion they can say we can't buy Formula One but would you like to come in with Sky. It is a good way of finding out if there is money out there."
If News Corp is looking for other backers to support its bid for BSkyB it would perhaps not be a surprise that it wants to keep it quiet as it would give BSkyB even more reason to increase the price of the 61%. Claiming that it is looking at buying F1 would give News Corp a perfect reason to approach other investors and vice versa. As Pitpass has already reported it is pretty clear there is next to no chance that the regulator would allow News Corp to take over F1 so if it already has got together a group of investors it could then speak to them on a private basis (since they would already be in talks) about instead backing its bid for BSkyB.
It would also explain why News Corp was happy for Sky News to promote the rumour that it is allegedly considering buying F1 which, if it was a serious bid, would certainly be something that the company would want to have kept quiet before approaching CVC. News Corp's informal approach to CVC makes it seem like the possibility of a bid is still alive which also perfectly suits Exor since it (thinks it) gives Ferrari pressure over Ecclestone and CVC in the negotiations about the new Concorde.
Cracks could be starting to appear though since even FIA president Jean Todt remarked over the weekend that "I feel it's strange [for someone] to say we want to buy, before we know it's for sale. I think the first action would be for whoever is keen to take over the commercial rights to find out with CVC what is the situation." Clearly it isn't necessary to do this if the purported buyer never bids as Exor and News Corp's own statement indicates is a possibility.
It is worth noting that Carlos Slim, who was originally linked with a possible News Corp bid for F1, was not mentioned in its statement with Exor. It is a point which does not seem to have got detailed coverage by Sky News' business editor Mark Kleinman, who originally talked of Slim's involvement. To Kleinman's credit, Sylt was told by a very close friend of Slim that he was indeed approached by News Corp about an F1-related plot. However, Slim's friend confirmed that he turned News Corp down and if the scheme is designed to ultimately help its bid for BSkyB this is no surprise.