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The puzzling case of Delta Prefco

NEWS STORY
06/02/2014

Tongues have certainly been wagging following the recent news that Formula One boss Bernie Ecclestone says he doesn't know anything about a bid for F1's parent company Delta Topco by media firms Liberty Global and Discovery Communications. One of the most entertaining reports said that even if a sale took place it would "not necessarily mean that a buyer would actually control the Formula One empire because this appears to influenced by a parallel company called Delta Prefco, which has some of the same shareholders as Delta Topco." In fact, this is far from the case because Delta Prefco does not even exist.

To recap, recent reports suggested that Liberty and Discovery are considering buying a 49% stake in Delta Topco from its largest shareholder, the private equity firm CVC. As Pitpass pointed out, Ecclestone said he had "never heard anything about" the rumoured deal and, perhaps more pertinently, CVC doesn't have 49% to sell as it only owns a 35% stake.

Between them, Liberty and Discovery own stakes in the British Virgin Media cable company and the EuroSport television station. It explains why talk of a takeover sparked reports that it could lead to F1 being dropped from Sky in the UK, particularly since 39.1% of it is owned by beleaguered media mogul Rupert Murdoch who is a longstanding rival of Liberty's founder John Malone. However, according to one report, a buyout wouldn't give Liberty the power to change channels for F1.

This brings us back to Delta Prefco as the report claims that the investors in it "get a different (and preferential) deal to those involved in Topco. It is understood that rather than getting a dividend based on annual profits, Prefco shareholders get pre-determined sums. In exchange for this benefit, the Prefco shareholders seem to have agreed to allow Bernie Ecclestone to have the right to veto all Delta Prefco decisions if he chooses to do so, so the acquisition of the Topco shares would not necessarily give a buyer control of the empire and purchasing the golden share from Ecclestone would, no doubt, be wildly expensive, unless there was a way in which it could be annulled."

In summary, the allegation is that even if Liberty and Discovery bought 49% of F1's parent company Delta Topco, it would not have control of the sport because that is vested in Delta Prefco and, in particular, in Ecclestone himself through his supposed "golden share" in it. It certainly sounds interesting but it couldn't be much further from the truth.

You won't find much information about Delta Prefco online. At the time of writing, typing it into Google yielded just 755 results with this Pitpass article at the top of the list. Our article said that Ecclestone has just one share in Delta Prefco and suggested that F1's Investment and Shareholders' Agreement could confer special rights, essentially making it a "golden share." Clearly, the author of the recent report read our piece which was printed in 2011 but doesn't seem to have done adequate research about Delta Prefco since then.

It's easy to get confused about the business of F1 as it is an incredibly complex field and similarly named companies abound. It is especially easy to make errors if facts aren't checked before they are printed. Articles in newspapers are read by editors, deputy editors, sub editors and lawyers before being printed but the piece in question appeared on a blog. It shows what can happen if the necessary checks and balances are not in place.

There may not be much about Delta Prefco online but there is one crucial piece of information. It can be found on the following link which shows in big red capital letters at the top of the page that "the entity is Dissolved."

You don't have to be a genius to find this out but you do need to have a habit of checking your facts. Anyone can do it. All you need to do is go on the website of the UK companies registry (companieshouse.gov.uk) then scroll to the bottom of the page and click on 'links'. From there you click on 'Jersey' as it is no secret that the F1 parent companies are based there.

That takes you to the Jersey companies registry where you can click on the tab marked 'Registry' which takes you to a page with another tab marked 'Easy company registry and search'. Hovering over that brings up the option marked 'company search' which, unsurprisingly, brings up a search page. Typing Delta Prefco into the search box eventually brings up the page which shows that the company was dissolved way back on 31 May 2012.

Seasoned F1 business analysts will immediately know the significance of that date as it pretty much coincides with when F1 was due to float on the Singapore stock exchange. Indeed, its preliminary flotation prospectus was dated 21 May 2012 and it is no accident that Delta Prefco was closed ten days later.

As Pitpass revealed in 2011 although CVC only has a 35% stake in Delta Topco, it controls the company. This is because its directors, who are known as I-Directors, have the power to outvote anyone else on the board of the company. It is another term which is outlined in the Investment and Shareholders' Agreement and when F1 eventually floats this document will be torn up. It will mean that board decisions are passed by a majority vote is what public shareholders would expect.

Likewise, closing Delta Prefco was part of this corporate housekeeping plan and it is understood that because dissolving a company takes a little longer than tearing up the shareholders' agreement, it was put into motion before the float was due to take place. This would explain why the Investment and Shareholders' Agreement, and CVC's I-Director powers which come with it, are still in place yet Delta Prefco was closed even though F1 did not float.

The bottom line is that Liberty and Discovery certainly don't need to buy Delta Prefco to gain control of F1 as it no longer exists. The important point to draw from this is that only way to get control of F1 is to acquire a stake of more than 50% in Delta Topco and get CVC to agree to waive its I-Director powers in the Investment and Shareholders' Agreement. That's no mean feat.

Christian Sylt

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READERS COMMENTS

 

1. Posted by BGP73, 07/02/2014 13:57

"Sorry but the regular and lenghty articles on the financial machinations of F1 are beginning to grate, they seem to go over old ground too often and the carping about OTHER sites and Blogs comes over as a bit sanctimonious and lacking in grace. Whoopee so you can decipher the nuances of deliberately convoluted share structures where other less informed "experts" and self appointed authorities cannot, whilst no doubt important I doubt it is what most F1 fans fixate upon.

This is a shame as in the main the content and breadth of articles published by Pitpass make it my "go to" website for fresh news on F1. "

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2. Posted by BigBaron, 07/02/2014 13:25

"First time looking at your site. This article is interesting news, but why such an acrimonious tone? It reads like an old grudge match.
I saw mention of an organization chart for F1 but didn't see it on any of the links. Did I miss it? It sure sounds convoluted! Either way, it sounds like Mr. Ecclestone-or his heirs if he's incarcerated-are going to make some money sooner or later."

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