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Lehman Brothers wins fight to keep its F1 shares

NEWS STORY
11/07/2009

What does Lehman Brothers know about the future of F1 that we don't? It certainly knows something because news has come out in the Financial Times today, courtesy of Pitpass' business editor Chris Sylt, that the bankrupt bank has won a battle to keep its shares in F1 and the right to repayment of a $550m loan it has given the sport.

Lehman must believe that the debt will be paid back and the shares will increase in value otherwise surely it would have dumped them just as it has offloaded its loans to home-owners who couldn't afford to make the repayments. From the outside, F1 looks like it should be in a similar position.

After all, if the FOTA teams start a rival series, as they have been threatening, then F1's revenues will collapse along with the value of shares in the sport which could fail to pay back its debt mountain now standing at $2.3bn. The noises coming from FOTA this weekend suggest that a rival series is on the cards again but Lehman's eagerness to keep hold of the F1 shares and debt suggests otherwise.

Of course Lehman's knowledge about the security of F1's future will have come from none other than the sport's boss Bernie Ecclestone and its majority owner, the finance firm CVC. They must be pretty confident they can avert a breakaway series and with a knowing wink Sylt says that the time to reveal their strategy will soon be upon us.

Indeed, Lehman was so eager to retain its 15% stake in F1's holding company Delta Topco that it actually fought off CVC itself.

Lehman first became an F1 shareholder in 2002 when it took over a stake held by German media company Kirch after it went bust and failed to pay back a loan provided by the bank. Lehman sold its stake to CVC in 2006 but then reinvested in Delta Topco and provided $550m of the $2.8bn debt which CVC used to buy the sport.

However, Delta's Articles of Association, the rules which govern its operation, give its directors the power to force any shareholder which goes bust to sell its stake for a fair price to a company of their choice. On October 10th last year, five days after Lehman Commercial Paper, the bank's company which directly owned the F1 stake, went bust, it received a letter from Delta demanding that it sell its shares to certain funds for a fair price.

However, US bankruptcy court filings reveal that the fair price is actually discounted whereas, according to Lehman, "market value would yield a purchase price for the Formula One investment materially in excess of the fair price." Accordingly it decided to move the shares and right to repayment of the debt into a new holding company containing the valuable assets in Lehman's portfolio.

Lehman will emerge from bankruptcy as a healthy company having cast off all its worthless assets and debt which is not likely to be repaid. It doesn't think its F1 investment falls into either category and so it will join Lehman's other valuable assets.

CVC agreed to waive its rights entitling it to force bankrupt shareholders to sell their stakes to a company of its choosing and an insider says that the reason for this is that Lehman is "not selling it to a third party, they are just passing it from the left hand to the right hand...it's effectively no change." Nevertheless, CVC has written to Lehman saying that it has only waived its rights on this one occasion and this doesn't mean it will do so in future.

So, F1 has managed to retain the same shareholders despite one being bankrupt. That's quite a feat. Now let's see how it manages to avoid a breakaway.

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