29/04/2013
NEWS STORY
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A flotation of Formula One on the stock market has been a long time in the making. It was first planned back in the late 1990s but was driven off course due to an anti-competition investigation into the sport by the European Commission. The plan then resurfaced in late 2011 when Pitpass' business editor Christian Sylt revealed that F1's boss Bernie Ecclestone had been advised to float the sport on the Singapore stock exchange. The weak economic climate in Europe put the brakes on the plan in summer last year but it has been gathering speed since then. Courtesy of an article Sylt has written in today's Daily Telegraph, we now know that visible steps have recently been taken to prepare for the float so it does indeed seem to be back on track.
Ecclestone told Sylt that the board of F1's parent company Delta Topco has voted to proceed with the flotation. It gives an exit route to CVC, the private equity firm which invested in F1 in 2006.
In March, Ecclestone said that a decision on whether to go ahead with the float would be made "in the next three months or so." This has now taken place and he says "we have agreed to do it. It will happen this year and it will be up and running. CVC is getting on with it and putting all the bits and pieces together that they have to."
Testimony to this, on Friday it set up Jersey-based company 'CVC Delta Topco Nominee' which is understood to be part of a reorganisation of the F1 company structure in preparation for the flotation.
Even though the flotation stalled last year CVC still managed to begin its exit from F1. It cut its stake by around half through selling 28.4% of Delta Topco for £1.4bn ($2.1bn) to money managers BlackRock, Waddell & Reed and Norges, the investment division of Norway's central bank.
"The people that represent the funds are good people to work with," says Ecclestone. Although he turns 83 this year they have not demanded that he appoint a deputy. "They are not at all demanding for me to have a successor," he says.
There is some debate about how much F1 is worth but in fact the answer is fairly straightforward. Figures range from a few billion dollars to around ten with one F1 writer recently putting it at £4.3bn ($6.6bn). They provided a list of the different shareholders in F1 with the caveat that "the numbers I have calculated come out at just over 100 percent." In fact, the total came to under 100% and there were a number of errors which should be obvious to anyone who understands the F1 company structure.
The most significant blunder was the claim that "overall the CVC funds together hold around 42.3 percent of the business. Waddell & Reed owns 14.4 percent." Waddell & Reed is a Kansas-based investment fund and it is F1's second-biggest shareholder. It bought its first F1 shares in January last year and in June it invested a further £322.3m ($500m) bringing its stake to 20.9%. There is no evidence that it has sold any shares since then so its stake stands at 20.9% which is far from the alleged 14.4%. How do we know it stands at 20.9% and not 14.4%? All you need to do is look at the press release from CVC to find that out.
The same press release also gives us a good insight into the value of F1 as it states that the Waddell & Reed investment gave F1 a £5.8bn ($9.1bn) enterprise value. There is good reason for this.
In January last year Waddell & Reed bought 13.9% of F1 and in June it took its stake to 20.9% with the investment of £322.3m. This means that in June last year 7% of F1 cost £322.3m which gave the entire equity in the business a value of £4.6bn. But that's not all.
To work out the enterprise value, net debt needs to be added to the equity. This gives the value that the business would have if it had not taken out any loans. By June last year F1 had £1.4bn ($2.2bn) of loans on its books including debt incurred through CVC's acquisition and further lending it has taken on. It also had £193.4m ($300m) of cash in the bank which gave the business net debt of £1.2bn ($1.9bn). Combined with the £4.6bn value of F1's equity this brings it to the enterprise value of around £5.8bn. It is some way from the alleged £4.3bn.
Since June last year F1's net debt has risen by £650m ($1bn) which increases the enterprise value so a figure of around £6.4bn ($10bn) is expected. Who knows, if CVC leaves it any longer it even be more.