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McLaren won't follow Williams with its own flotation

NEWS STORY
01/03/2011

With only one day to go before Williams floats in Frankfurt some media outlets have been gripped by frenzied speculation that other F1 teams will follow suit. Pitpass' business editor Chris Sylt put the question to McLaren, the team which is perhaps best-suited to a stock market flotation, and, as his report in the Guardian newspaper reveals, the answer is a resounding 'no'.

"The McLaren Group has no plans to float in the future," says the company's chief financial officer Andy Myers. McLaren is 50% owned by Bahrain's Mumtalakat sovereign wealth fund with the remaining shares in the hands of its chairman Ron Dennis and Saudi tycoon Mansour Ojjeh. He says that it is best left this way: "our strategy now is to remain as a private company in the ownership of a small number of focused shareholders, since we believe that best suits our business model."

You can hardly argue with him - McLaren's strategy has propelled it to more drivers' championships than any other team except for Ferrari. Success has attracted a string of blue chip sponsors to the team including Exxon Mobil, Hilton, Hugo Boss and title partner Vodafone which is believed to be paying McLaren around $75m annually - nearly double Williams' total estimated sponsorship tally. In the 12 months to 31 December 2009 sponsorship income and prize money fuelled McLaren's revenue to £174.8m and left it with an after-tax profit of £50.2m - ten times higher than Williams' net result in the same year.

McLaren finished 2009 third in the standings with Williams four places behind. A crucial difference between the two teams is their costs with McLaren spending 30% more than Williams on its F1 campaign in 2009. This may translate into better results on track but that is no guarantee that investors would benefit.

"Attracting appropriately skilled performers to allow teams to hit on-track performance targets can be a costly business," says Martyn Hawkins, senior consultant for the Sports Business Group at accountancy firm Deloitte. However, he adds that "it was the cost pressure on player wages and transfer fees - combined with ineffectual cost control - that was one of the main factors that prevented the majority of football club stock market flotations from being successful."

In Williams' case there is the additional factor that the team is not floating on the main Frankfurt stock market but instead on its junior exchange. The consequence of this according to Charles Braithwaite, a partner at law firm Collyer Bristow, is that "Williams F1 will not be subject to the same stringent transparency obligations as those companies listed at higher levels and in other European exchanges, and will not have to reveal the details of its various sponsorship deals. This is helpful for preserving confidential details even if, for investors, this means Williams F1 is a higher risk, lower transparency proposition."

Tomorrow we will see just how significant a factor this may be.

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