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Former F1 owners in mass share sell off

NEWS STORY
22/09/2017

Almost all of Formula One's former owners are selling off their shares which track the performance of the sport in a transaction which is expected to close today according to an article in the Guardian by Christian Sylt.

When F1's current owner Liberty Media bought the sport's parent company Delta Topco in January for 3.2bn ($4.4bn) it trumpeted the fact that part of the payment to the sellers came in the form of shares listed on America's Nasdaq stock market. They were given to everyone who owned stakes in Delta Topco, from the FIA and Ferrari to Bernie Ecclestone and the company's controlling shareholder CVC.

The shares are known by the embarrassing-sounding name of 'FWONK' which is short for Formula One and is followed by a 'K' as that is the letter that refers to non-voting stock.

Liberty itself owns 100% of Delta Topco so the shares don't offer any stake in the company. Instead they just reflect its financial results and those of related companies in Liberty's portfolio. This portfolio is known as the Formula One Group and the better it performs, the greater the returns for shareholders and vice versa.

FWONK shares have accelerated in value despite the loss of the British Grand Prix and the Malaysian Grand Prix, the threat of a corruption investigation surrounding F1's governance contract and the Formula One Group making a 95 million net loss in the first six months of this year as previously reported.

The Delta Topco sellers got the shares at the pre-takeover price of 15.66 ($21.26) but they have risen a staggering 76.2% since then and closed yesterday at 27.58 ($37.45). It sounds like the dream investment but, as any advisor will tell you, past performance does not necessarily predict future results. The big question for shareholders, or prospective buyers, is whether the shares will keep on increasing in value. If they are likely to continue on an upward trend the last thing you want to do is sell but that is exactly what almost all of the former Delta Topco shareholders are doing. They aren't the only ones.

Former Delta Topco shareholders including Bernie Ecclestone, his Bambino family trust, Martin Sorrell and JP Morgan have all put their entire stakes up for sale. So has Ian Holmes who is currently F1's global director of media rights. Even Liberty's management have taken advantage of the accelerating stock price. Its chief financial officer Mark Carleton has sold all of his FWONK shares and has made 1.8m ($2.5m) from doing so since the F1 acquisition.

As the Guardian points out, perhaps ominously, F1's teams have steadfastly resisted opportunities to buy FWONK shares which would give them a long-term interest in F1. They are the stakeholders that F1 needs on-board most in the long run. This is because all of Liberty's contracts with the teams expire at the end of 2020 so, as things stand, it only has three and a half years of guaranteed income. The teams didn't just decline the shares once, they turned them down again when they were offered an even better deal.

A total of 1.2bn of the cash paid to F1's former owners by Liberty came from seven American investment funds which bought 29.4% of FWONK's stock in December at the discounted price of 18.41 ($25) per share. Just one month later the teams walked away from a chance to buy it at 15.66 ($21.26) when it was trading at just over 22 ($30). Liberty gave them less than a month to buy 810.1m ($1.1bn) of stock but there were no takers. The shares on offer were the ones given to Delta Topo's former owners so it left them with less cash than they had hoped for.

To compensate, Liberty itself acquired 294.6m ($400m) of the stock and offered it to the teams with a deadline of 23 July, by which time it was trading at 25.73 ($34.94). However this plan also skidded off track and the shares had to be retired after none of the teams snapped them up. After today's sell off there will be even more F1 stakeholders who don't own shares. Given that they have accelerated in value, and the media has eulogised about what Liberty brings to F1, one has to wonder why some of the sport's most significant stakeholders don't want to own stock.

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1. Posted by Francis, 22/09/2017 14:31

"Public ownership is a complex issue that is not covered very well in this article. For example if Liberty is offering to sell the teams the FWONK shares, the teams would be stupid to buy those shares however attractive the pricing is set. K-Class shares are non-voting ordinary shares, which means you own a business, you invest large sums in the business, but you have NO voice in how the business operates. WHY on earth would any team buy those shares?

Look at it this way, combined together the most expensive part of running formula one is the investment each year by the teams and the track owners/operators. They not only develop all the relevant technology, but they also share the cost of most of the common expenses that F1 incurs annually. In addition, the track operators all carry the hosting costs of each of the F1 events. What exactly does F1 pay for in formula one - I suspect FOM's business structure is largely a recoupment business so they may end up carry less than 10% of the net costs of staging F1 annually. So if you are a team, why would you buy into a business that transfers all cost to you or the track owners but refuses to give you a voice in its operations? Ultimately owners would be better protected negotiating a new long term concorde agreement that is more equitable for all teams than owning the FOM franchise.

Their refusal is not a lack of faith in the business, but the lack of interest in being a flunky to Liberty Media's plans for the future. As for all those other events, rest assured Liberty already hedged (insured) against those financial risks."

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2. Posted by Mad Matt, 22/09/2017 10:00

"Three reasons occur to me.

Firstly perhaps the teams fear an investigation. At the moment the sport is split into three, the competitors (the teams), the regulator (FIA) and the promoters (Liberty/FOM).

In the past the FIA and FOM were forced to become more independent. So, perhaps the teams fear provoking an investigation if some of the competitors become promoters too. I'm not saying that this is wrong, I'm just speculating as to their thinking.

Another thought is that perhaps the teams want to keep alive the threat to set-up a rival series if they don't get what they want when the new contract is negotiated. In this scenario not buying into FOM keeps open the threat of leaving.

Thirdly, perhaps they're just poor investors :-)"

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