13 replies to this topic

[csylt]

Hi guys. What do you reckon of this one?

I was recently reviewing CVC’s press release (http://www.formula1.com/news/3856.html) about its acquisition of JP Morgan’s Speed shares and the following quote caught my eye: "Alpha Prema is a newly incorporated company through which funds managed or advised by CVC Capital Partners Group ("CVC") are making their investment in Formula One."

I find most intriguing the use of the words ‘their investment in Formula One.’ It is clear from the above quote that CVC is holding its stake in Alpha Prema on behalf of other parties - the funds (and their investors) that CVC manages or advises. The question is, what are these funds and who are their investors?

CVC itself may not even own any equity in Alpha Prema. Its stake may be entirely owned by the funds it manages/advises which are investing in F1 through Alpha Prema. Board composition wouldn't give a clue to ownership either since CVC’s board member Mackenzie would remain as an Alpha Prema director irrespective of who owns its stake. The press release states that CVC is managing/advising the funds which are investing in Formula One through Alpha Prema so it has the board-level management responsibility for their investment.

Unless CVC discloses it, there is no way of publicly knowing who these funds are, let alone knowing who the funds’ investors are. This kind of disclosure seems damn unlikely to me since CVC isn’t even disclosing where Alpha Prema is based!

It is possible that the investors in the funds which are making their investment in F1 may have even first approached CVC about investing in F1 rather than the reverse. That is, instead of CVC taking its stake in Alpha Prema and then finding funds to invest in it, the investors in these funds may have approached CVC first about making an investment in F1 which led to Alpha Prema being set up and its acquisition of the SLEC stakes.

The list of possible investors in these funds is endless. However, starting with the premise that instead of buying the stakes in SLEC directly, they are choosing to own them in an anonymous fashion, one immediate example which springs to my mind is Dietrich Mateschitz.

Mateschitz may be aware that teams might not be prepared to race in F1 if it was public knowledge that the owner of two of their rivals also ultimately owned the commercial rights. Since he is privately wealthy, his investment in a fund would probably not be traceable to him. Of course, many of the privately wealthy individuals with existing interests in F1 also fit into this category.

The bottom line for me is that it seems we do not know who is really the majority owner of F1. With the confirmation of the existence of these funds which are investing in F1 through Alpha Prema, it seems certain that CVC itself doesn’t own all of its stake in Alpha Prema.

Wonder what the GPMA will think about racing for a series whose beneficial owners are unknown?

[polendo]

I just know that uncle Bernie keeps selling F1 over and over again to high rollers and he still calls the shots all the time. If he ever taught a business class at the uni I would be first in line to take it.

regards

[Jacar�]

Originally posted by csylt
CVC is holding its stake in Alpha Prema on behalf of other parties - the funds (and their investors) that CVC manages or advises. The question is, what are these funds and who are their investors?

CVC raises its funds from institutional investors and high-net-worth individuals. Their most recent fund has 6 billion euro, which makes it Europe's largest private equity fund. I'd guess the F1 investment was spread across the CVC European Funds:

CVC European Equity Partners ("Fund I") US$ 840 million * 1996
CVC European Equity Partners II ("Fund II") US$ 3,333 million * 1998
CVC European Equity Partners III ("Fund III") US$ 3,970 million * 2001
CVC European Equity Partners IV ("Fund IV") €6 billion (US$ 7.2 billion) * 2005

[csylt]

Good info. Still doesn't remove the possibility that one of the high-net-worth individuals put capital into one of the funds on the basis of it investing in F1. But that's the problem - we can't find out details of who is behind them...On a related note I have found an article from this week's issue of Legal Week (http://www.legalweek...em.asp?id=26868) quoting a sport's partner who says "This is nothing like a done deal."

[Jacar�]

I think people investing in CVC funds, such as the latest CVC Fund IV, didn't know they'd be buying F1. They'd be passive investors, looking for very good returns. For example, here's a decision to invest 20 million dollars in the CVC Fund IV, on behalf of the State of Rhode Island (general funds and pension funds)

Proposed Alternative Investment – CVC European Equity Partners IV, L.P. (“CVC IV”).
Mr. Martenson of Pacific Corporate Group (“PCG”) gave a brief overview of CVC IV, which is
being formed to make investments in buy-outs, buy-ins, acquisitions, recapitalizations, and
related transactions on a pan-European basis. Some transactions may extend beyond Europe as
the fund does not set predetermined geographic or sector targets, but rather invests
opportunistically across Europe. CVC Capital Partners has raised $7 billion through three
previous funds and made investments in 95 portfolio companies. The Employees’ Retirement
System of Rhode Island (“ERSRI”) is a limited partner in both CVC II and CVC III.
Mr. James Joy, Managing Director represented CVC IV. He noted that CVC IV will
invest in companies possessing talented and experienced management teams, strong market
positions, and opportunities for profit growth. CVC IV intends to broadly diversify its European
investments in a variety of industries and geographical locations in order to mitigate portfolio
risk. Historic investments are in the manufacturing, leisure, food and beverage, distribution,
chemicals, automotive, utilities, services, and retail industries among others.
Target size of CVC IV is € 5 billion with a cap of € 6 billion. CVC funds have achieved
top quartile returns. Fund I has a net IRR of 24.7%, Fund II has a net IRR of 21.0% and Fund III
has a net IRR of 44.6%. Mr. Joy noted that CVC is very well positioned, having operated in
Europe for 24 years.
Ms. Reback moved, Ms. Gallogly seconded and the following motion was passed
unanimously. The following members voted in favor: Mr. Costello, Ms. Gallogly, Dr. McKenna,
Ms. Reback, Mr. Treat, and Treasurer Tavares.
VOTED: To invest up to $20 million (USD) in CVC European Equity Partners IV, L.P.
contingent upon satisfactory review and negotiation of investment and other
legal documents.

http://www2.sec.stat...8/2005/1741.pdf

[Jacar�]

Originally posted by csylt
Still doesn't remove the possibility that one of the high-net-worth individuals put capital into one of the funds on the basis of it investing in F1.

The latest fund IV closed on July 29. I don't know whether CVC's plans for investing in F1 started before this, giving F1 insiders the opportunity to buy into Fund IV? http://www.cvc.com/d...nal Closing.pdf

[xype]

All your base are belong to Bernie.

[Jacar�]

another question: Who REALLY owns MotoGP?

60% CVC European Equity Partners II ("Fund II")
20% Citicorp Capital Investors Europe
20% Capital Ventures Nominees

sources:
http://www.etat.lu/m...df/c0192033.pdf
http://www.etat.lu/m...df/c0323124.pdf

So I guess it's "Fund IV" which owns the CVC majority share of F1

[angst]

Originally posted by Jacaré
I think people investing in CVC funds, such as the latest CVC Fund IV, didn't know they'd be buying F1. They'd be passive investors, looking for very good returns. For example, here's a decision to invest 20 million dollars in the CVC Fund IV, on behalf of the State of Rhode Island (general funds and pension funds)

http://www2.sec.stat...8/2005/1741.pdf

And if those passive investors are looking to CVC for good returns, then doesn't that make it more likely that CVC will be looking at selling their F1 shares on, given the rather poor potential returns that F1 may offer according to Csylt's figures.

Who would gain most from such a buyout? One of the media groups that have been sniffing around would be my bet. BSkyB perhaps?

[Jacar�]

I think before CVC sell their stake in F1, they will do some corporate reorganisation to tidy up all of Bernie's old companies into something sensible and manageable. For example: refinancing the Eurobond loan and shutting down F1 Finance would simplify the corporate structure, save money in the long run, and free up the retained profits. Bernie didn't do this because the current structure is designed for his own profits. It will take CVC a long time to do all the legal and financial work to create a simpler corporate F1. I think it should be quite profitable. One way to find out how long CVC plan to keep their stake in F1 would be to find out how many years is Gribkowsky's contract with Alpha Prema.

[TailG]

Kimi ownz it!

[csylt]

I think all you guys have it right (with the obvious exception of TailG, no bad will intended of course!). The question is, who is behind the fund(s) in question? It's also quite interesting that the statement about the Alpha Prema stake being the investment vehicle for the funds in question was NOT in the first press release but appeared in the second one.

Until I read the second press release in detail and considered its implications I had assumed (wrongly) that CVC itself may own all of its stake in Alpha Prema. Now, with the news that the company is a vehicle through which funds managed/advised by CVC are making their investment in F1, it is certain that CVC itself does NOT own all of its stake in F1. To be clear, CVC has legal ownership of the entire stake but it does not own it all beneficially. Yet we haven't a clue as to who does.

I find it staggering that not only do we now not know who owns F1 but we may never know. I ask myself why F1 needs such a secretive ownership structure (a rhetorical question)....Doesn't quite match what GPMA is demanding...

[Jacar�]

Originally posted by csylt
To be clear, CVC has legal ownership of the entire stake but it does not own it all beneficially. Yet we haven't a clue as to who does.

exactly the same with MotoGP, where it's the "Fund II" which owns the investment managed by CVC. These are passive investors. They are not consulted when management decisions are made.

[csylt]

Totall agree on both counts. As I said above, CVC has board-level management responsibility for the investment. I see the comparison between MotoGP but it doen't help us answer the question. I'd add that MotoGP didn't have the problem of needing to increase transparency to stop a breakaway when CVC invested in it. F1 does. This hasn't stopped it becoming more obscure.

This latest devlopment is already in front of the GPMA and I'll wait and see what it makes of it. We are guessing about which fund could have beneficial ownership of CVC's Alpha Prema stake let alone knowing who may be behind it. Sadly we may never know...