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Ecclestone: "It's bollocks"

NEWS STORY
31/08/2011

Scarcely a day seems to go by without news of legal goings on in Formula One. Most seem to be focussed on the case involving the sport's former chairman Gerhard Gribkowsky who was imprisoned in January on suspicion of receiving a $44m bribe to undervalue F1 when it was sold to current owner, private equity firm CVC, in 2006. Two weeks ago news came to light of another law suit about the sale of F1 which, this time, had been filed against the sport's boss Bernie Ecclestone. It left newspapers scratching their heads about whether it was connected to the Gribkowsky affair. Today, courtesy of an article in the Independent by Pitpass' business editor Christian Sylt, not only do we finally have the answer but we also have the F1 supremo's take on it.

Constantin Medien, a former part-owner of F1, filed the lawsuit last month just days after Ecclestone was formally accused of paying the bribe to Gribkowsky. The two events are closely connected.

In 2000 and 2001 Constantin, then known as EM.TV, bought a 75% stake in F1's parent company SLEC before coming close to collapse during the recession over the following years. It was saved by another German media company, Kirch, which bought 58.3% of EM.TV's stake in F1 using a $1.6bn loan from three banks: BayernLB, JP Morgan and Lehman Brothers.

Kirch itself went bankrupt in 2002 and the banks took over its F1 shares which their loan was secured on. EM.TV then agreed to sell to the banks the 16.7% stake it had been left with. The stake had a sheet value of €204m but, according to company documents seen by Sylt, it was sold for just €8.5m on condition that when the banks sold the combined 75% the media firm would receive "a part interest in the surplus exceeding the amount loaned." Reducing the value of its F1 stake by €195.8m led to EM.TV making a €310m net loss in 2002 and the gamble did not pay off.

By the time that CVC bought F1, five of the six car manufacturers in the sport were threatening to set up a rival series due to a pay dispute. The value of F1 crashed and CVC was in pole position as the highest bidder.

Hong-Kong based conglomerate Hutchison Whampoa reportedly offered $1bn with rival private equity firm Clearbrook Capital making a $1.5bn bid. CVC paid $1.7bn and Ecclestone says it "gave a very good price. They didn't buy the shares under value, it was the opposite... Four or five proper people offered considerably less... There could have been a big bust up with the teams. It was so close that it was easy to happen."

CVC's offer gave the banks $1.2bn - $400m less than they had loaned Kirch. It was still more than the banks expected since they had gradually reduced their internal value of the shares (known as book value) due to the uncertainty over F1's future. In 2004, Sylt reported in the Independent that Werner Schmidt, then BayernLB's chairman, said the value of the stake was "far lower" than €650m and Ecclestone adds that "the price I got them for their bloody shares was double what they were in the books at." BayernLB announced a valuation yield of €328m in its 2006 results and stated that the sale of the F1 shares "decisively contributed to the positive result." EM.TV was not so fortunate.

Since the banks received less than the loan they gave to Kirch there was no surplus for EM.TV to share in. However, in January, Gribkowsky, who, as well as being F1's chairman, also advised BayernLB on the sale, was arrested on suspicion of receiving the $44m bribe for undervaluing the bank's stake. Last month German prosecutors formally accused Ecclestone of paying the bribe. In response he admitted making the payment but said he did so because Gribkowsky had threatened that he would otherwise report unfounded allegations to the UK's Inland Revenue about Ecclestone's connection with his independent family trust Bambino.

The prosecutors' claims led to Constantin filing the lawsuit against Ecclestone as well as Bambino, his lawyer Stephen Mullens and Gribkowsky. Constantin claims they are to blame for selling F1 too cheaply and so it is due over $100m. A trial in Germany against Gribkowsky will focus on whether F1 was undervalued but it is not due to begin until autumn at the earliest.

"They said I paid Gribkowsky money to sell the shares cheap and if they had been sold at the right price they would have got a percentage," says Ecclestone, adding "it's bollocks. The shares were not undervalued and who knows what they were worth? That's the whole point."

Pitpass has written extensively about why there is no chance that F1 was undervalued and even BayernLB itself now seems to have come to that conclusion. Stephan Winkelmeier, BayernLB's chief financial officer, was quoted in the Financial Times on Monday saying that the sale of the F1 stake has been checked internally, by the management board and the supervisory board of the bank, and externally by auditors. He added that "so far those checks have not revealed any problems and have shown that the sale was carried out properly, in accordance with the bank's regulations and with a price that was in line with expectations."

Ecclestone says that one of Constantin's board members is driving the lawsuit. Ecclestone says "he sues and causes as much problems as he can then he settles. He will say 'I will take half or whatever to save going to court.' If somebody threatens they are going to kill me they better pull the trigger so if he wants to go to court, he can go to court, no problem at all."

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