18/02/2013
NEWS STORY
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The plan to float Formula One on the stock exchange has had more than its fair share of false starts. First proposed back in the late 1990s, the float plans soon hit bumpy ground due to a pay dispute with the teams. Then an anti-competition investigation into F1 by the European Commission finally put the brakes on the plan. Instead, in 1999, F1's boss Bernie Ecclestone took out a £900m loan secured on the future profits of the sport and then sold stakes in the business for £1.6bn ($2.5bn) over the following six years. The most recent sale was to current owner, the private equity firm CVC and, as Pitpass' business editor Christian Sylt reveals in today's Daily Telegraph, it is set on the idea of floating F1.
Known internally at CVC as 'Project Green', the plan to float F1 again reared its head in November 2011 when Sylt revealed that Ecclestone had been advised to list the business on the Singapore stock exchange. It was expected to value F1 at £6.5bn ($10bn) but the economic turmoil on the stock markets last summer put the brakes on the plan yet again. Like the previous time, a series of stake sales and loan payments followed in the wake of the brakes being put on the flotation. It was gone but not forgotten.
Sylt reveals that CVC intends to float F1 in October and the Initial Public Offering (IPO) will still take place on the Singapore stock exchange. However, CVC isn't resting on its laurels and is now targeting a value of more than £6.5bn for F1.
The brakes were put on the IPO last year around the same time that F1's former chairman Gerhard Gribkowsky was found guilty in Germany of receiving a £28.4m ($44m) bribe from Ecclestone in return for steering the sale of the sport to CVC in 2006. Ecclestone has not been charged with any wrongdoing though he is still under investigation by the German authorities. A source close to CVC expects him to be in the clear by October.
"In October this year, we ought to be able to look at the following year and say that most of next year's earnings are under contract, the market is in a very good place and Germany is now clear," says the source.
He added that meant: "off we go in October this year. If you think about it, once Germany is clear, the F1 IPO could be as simple as saying 'we did what we said we would do, meaning we delivered on our numbers, Germany cleared itself up, the business went to Singapore and we stand behind everything we told you last year in terms of earnings forecasts'. That's quite a powerful story."
The CVC source says that F1's value has accelerated thanks to the upswing in the economy. "The market has re-rated the comparables, like Discovery Channel and others, from 15 times to 20 times price/earnings so as a consequence the business is actually worth a lot more than it was last year."
Discovery is a science and geography channel owned by Discovery Communications which is listed on the US Nasdaq exchange. Over the past year its shares have risen 55.5% to close at £45.39 ($70.30) on Friday. The source adds "the stock market has gone up 10 or 15% this year, Discovery and all the US media stocks have gone up a lot. F1 travels in those circuits."
CVC says that F1 is "completely on track" to deliver on the 2013 and 2014 earnings projections. It is understood that these show revenue of £1.2bn ($1.8bn) this year rising 11.1% to £1.3bn ($2bn) in 2014 when net profits are expected to hit £295m ($457m).
The projections were produced before the demise of the Grand Prix of America which was due to take place in New Jersey this year. However, since then Ecclestone has signed several significant sponsorship deals with watch company Rolex and the Emirates airline and these have more than made up for the loss of the race. "The business is trading fine and we have had a couple of good contracts with Rolex and Emirates so in that sense it is all fine," says the source.
Over the past year CVC has cut its stake by around half through selling a total of 28.3% of F1 to Norges, the investment division of Norway's central bank, and two US money managers, BlackRock and Waddell & Reed. CVC netted £1.4bn ($2.1bn) from the sales and a further £278m ($430m) from a dividend in April last year. After putting the brakes on the IPO CVC got a further boost to its returns when F1 took out a £900m ($1bn) loan so that the proceeds could be paid to shareholders. CVC's share came to £320m ($355m) in line with its 35.5% stake in F1 and the source says that it has no plans on reducing this further.
Ecclestone adds that CVC has rebuffed offers since selling to the funds. "CVC have been approached but didn't particularly want the people that approached them since the last sale. They are very conservative people CVC." It seems to be a winning formula.