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Deloitte says F1 wasn't undervalued when sold to CVC

NEWS STORY
25/05/2011

For the past five months Gerhard Gribkowsky, the former chairman of F1's previous parent company SLEC, has been languishing in a jail in Munich. Gribkowsky has been accused of receiving $50m for allegedly undervaluing a 47.2% stake in SLEC which his former employer, German bank BayernLB, sold to its current owner CVC in 2006. Soon after Gribkowsky was arrested, Pitpass' business editor Chris Sylt rubbished the idea that SLEC was undervalued and not only are we now starting to get independent proof of this but it seems that BayernLB got a lot more for its share than anyone expected.

As Pitpass recently revealed, CVC paid precisely $1,710,312,000 for SLEC and, until the start of this year, it seemed that this was all in the past. However, when it came to light that in 2006 and 2007 two firms in the British Virgin Islands and Mauritius had paid Gribkowsky's company $50m for F1 consultancy services it raised the question of what he might really have done to deserve it. Barbara Stockinger, spokeswoman for the prosecutors claimed that BayernLB's SLEC stake "had been sold without being properly evaluated" and Gribkowsky had received the money as a result. But how could they prove this?

BayernLB decided to appoint the accountancy firm Deloitte to produce a retrospective valuation of its SLEC stake and, according to reports in the German media, the results are in. Deloitte's conclusion is apparently pretty clear: BayernLB's SLEC stake was not sold for less than it was worth. The German media reports add that the prosecutors have now accepted this conclusion which of course contradicts their initial assessment.

This doesn't come as much of a surprise to Pitpass and way back on 23 January we told readers that "it would be hard to believe that Gribkowsky undervalued the stake when it was eventually sold but this is exactly what he has been arrested for."

When CVC bought F1 the teams were threatening to start a rival series and had hired advisers to put the plan into motion. With hindsight it is easy to see that their threat was (and still is) utterly laughable but at the time it seemed very real. As F1's boss Bernie Ecclestone recently told Sylt, "CVC were very courageous when they bought." They were also very shrewd.

SLEC had three other owners in addition to BayernLB. JP Morgan and Lehman Brothers owned 13.5% and 14.3% respectively with the remaining 25% in the hands of Ecclestone's family trust company Bambino Holdings. As Pitpass reported in February BayernLB sold its stake in SLEC at a higher rate than that which the other two banks received. According to the German media reports earlier this week, there was good reason for the difference in the rates.

CVC agreed to buy the stakes from the owners at different times. The first to sell were Bambino and BayernLB on 25 November 2005. This gave CVC a controlling stake in SLEC which then made it harder for JP Morgan and Lehman Brothers to command higher rates for their shares. Indeed, Lehman Brothers actually sold its shares on 29 March 2006 five days after CVC declared that it had concluded its acquisition of F1. Clearly by deciding to sell first BayernLB and Bambino gave CVC a big advantage when negotiating with Lehman Brothers and JP Morgan and it seems they were well remunerated for this decision.

According to the German media, CVC paid BayernLB and Bambino a multimillion dollar bonus for agreeing to sell first. It will have given a big boost to the return BayernLB made on the sale of its SLEC stake. As Pitpass has reported, BayernLB announced a valuation yield of €328m in its 2006 results and stated that the F1 shares "decisively contributed to the positive result."

The conclusion that the shares were not undervalued after all may have some sections of the media clutching at other straws to try and explain why $50m could have been paid to Gribkowsky. In reality of course, the very fact that one of the prosecutor's key arguments has been proven false calls into question the other allegations against him.

Likewise, accountancy firm Ernst & Young and the law firm Freshfields have cleared F1 itself of any wrongdoing in relation to the alleged payment to Gribkowsky. Sky News predicted that F1 "faces being thrown into turmoil," by their investigation but in fact it was the first step in the sport clearing its name. The turmoil certainly hasn't materialised but speculation still abounds as to why Gribkowsky may have received the money.

One theory claims that Ecclestone paid $50m to Gribkowsky to ensure that he would sell to CVC which had committed to keep him as boss of F1. This seems highly unlikely. True, Sylt has seen F1 company documents stating that "key to structuring the transaction was allowing Bernie Ecclestone to retain operating control to continue growing the business." However, there is no evidence that any money was paid for this and, more to the point, if it was the reason for a bribe being paid, you certainly wouldn't expect it to be publicised openly in company documents.

Another theory, which has been reported in the German media, allegedly comes directly from Ecclestone himself. At 8.45am on 6 April Ecclestone's Dassault Falcon 7X touched down at Munich airport and remained in slot 117 for 10 hours and 25 minutes whilst the F1 boss was questioned in the county court building on the city's Nymphenburger Strasse. He gave his testimony to public prosecutor Hildegard Baumler-Hosl and her colleague Manfred Notzel who is believed to have taken 15 pages of minutes from the meeting.

Apparently, these minutes reveal that Ecclestone claimed Gribkowsky demanded $40m (not $50m) after the sale to CVC and threatened that if it was not paid he would let the UK Exchequer know details about his international business network and its tax structure.

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