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A letter from Gerhard Gribkowsky

NEWS STORY
23/01/2011

Formula One has driven through many legal scandals in the past 10 years. Some were more significant than others. However, none involved the imprisonment of one of the parties. That all changed at the beginning of this month with the arrest in Germany of Gerhard Gribkowsky, the former chairman of SLEC, the company which, until 2006, ultimately owned the commercial rights to F1. Not that the man on the street in the UK would know much about this though because media coverage in the UK, has been scant to say the least. That's not the case abroad.

To understand the background to this we need a quick history lesson from Pitpass' business editor Chris Sylt.

Gribkowsky was the chief risk officer of Munich-based bank BayernLB which, along with Lehman Brothers and JP Morgan, lent $1.6bn ($1,570.2m to be precise) (£981.2m) to the German media company Kirch in 2001. The money was used by Kirch to buy a 63.9% stake in SLEC from EM.TV, another German media firm. EM.TV retained an 11.1% stake in SLEC with the remaining 25% in the hands of Bambino Holdings, the Jersey-based company ultimately owned by F1 boss Bernie Ecclestone's family trust.

In 2002 Kirch got into financial difficulties and it became clear that it would not be able to repay the loan to the three banks. As security for the loan they had given Kirch, the banks took over its stake in SLEC, followed by EM.TV's shares, to give them a total of 75%. This was divided according to the amount of money the three banks had lent Kirch so Bayern held 47.2% as it provided $987.5m (£617m) of the loan. Lehman lent $300m (£187.4m) which gave it a 14.3% stake in SLEC and JP Morgan ended up with 13.5% as a result of it giving a $282.7m (£176.659m) loan.

The banks did not take over the SLEC stake out of love for F1, they did it with the sole aim of selling it on and recouping the money they had lent to Kirch. Gribkowsky was the representative of the single biggest SLEC shareholder and he became chairman of its board.

Gribkowsky's first task was getting control of the SLEC-owned companies which actually run F1. Although the banks held a majority stake they found that their directors didn't occupy the majority of board positions on companies including Formula One Holdings (FOH) and Formula One Administration (FOA) which directly owns F1's commercial rights. The banks claimed that control of the boards was in the hands of directors representing Bambino. Getting control was crucial for the banks because they could not get the highest price for their stakes without it.

First, Speed Investments, the company which held the banks' 75% stake in SLEC, sued Bambino to get control of FOH. Speed won and then it launched further legal proceedings against Bambino and Ecclestone personally to get control of FOA after one share granting 50% of the company's voting rights was signed into his name.

This led to the resignations of key people in SLEC's subsidiaries but the details of this could be a story for another day. In the end Gribkowsky did not need to go to court with Ecclestone and Bambino over control of FOA as on 25 March 2005 Bayern released a statement saying that "Mr Ecclestone and Bambino Holdings have demonstrated prudence in backing down on all of the points under legal dispute."

It was an unusual example of Ecclestone caving in and it gave the banks the control they needed to get the highest price for their SLEC shares. The court cases alone had taken over a year to play out and this alone indicates the great lengths Gribkowsky went to in order to increase the value of Bayern's stake. Therefore, it would be hard to believe that Gribkowsky undervalued the stake when it was eventually sold but this is exactly what he has been arrested for.

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