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Lehman Brothers commits to cashing in its F1 stake by 2014

NEWS STORY
07/03/2012

It is sometimes said that Bernie Ecclestone is the only person who has made any real money out of Formula One. This is far from the case as shown by a report in the Guardian by Pitpass' business editor Christian Sylt. It reveals that Lehman Brothers, the bankrupt US bank, has committed to cashing in its 15.3% stake in F1's holding company Delta Topco within two years and is expected to make 1bn from it. This isn't going to go anywhere near to clearing its debts which total 285bn but anyone who is owed money by Lehman Brothers should certainly be grateful that it holds a stake in F1. The big question now is who will be its new owner?

Lehman is the second-biggest shareholder in Delta Topco which is majority owned by private equity firm CVC and, according to a senior F1 source, is valued at "more than $10bn (6.4bn)."

A sale could open the door to new investors in F1 which has been a subject of much discussion over the past year. In April media group News Corporation said it was considering a bid with Italian investment firm Exor. Abu Dhabi sovereign wealth fund Mubadala and the world's richest man Carlos Slim were also believed to be interested and in November Ecclestone said he had been advised to float the business in Singapore rather than sell it. It remains to be seen which of these routes will be taken by CVC.

Lehman first became a shareholder in 2002 when it took over a stake in F1 held by German media company Kirch after it defaulted on a loan provided by the bank. Lehman sold its F1 stake to CVC in 2006 but then reinvested and provided 350m of a 1.8bn loan which the private equity firm used to buy the sport.

When Lehman went bust in September 2008 CVC attempted to seize its F1 shares since Delta Topco's Articles of Association (the legal rules governing the company) give it the power to force any shareholder which goes bankrupt to sell to it for a fair price.

Lehman objected to this on the grounds that its stake would be worth more if it was sold as part of a controlling interest in F1. CVC agreed and allowed it to move its shares and right to repayment of the debt from its bankrupt arm Lehman Commercial Paper into LBI Group, a new holding company containing the valuable assets in Lehman's portfolio.

LBI's purpose is to generate cash from its assets which is then used to pay Lehman's creditors. This is an ongoing process and dissolving it completely depends on paying the people who are owed money by the bank. The fact that Lehman claimed its stake would be worth more if it was sold as part of a controlling interest in F1 suggests that when it eventually gets rid of its shares they will be sold as part of a package which includes the biggest single stake in the sport.

To ensure that the F1 stake raises funds for Lehman's creditors, LBI has committed to paying Lehman Commercial Paper an amount equal to the market value of the shares if it has not sold them within two years. The documents state that "if, on June 30, 2014, [LBI Group] has not disposed of all of the Formula One assets, then [Lehman Commercial Paper] may, at any time thereafter demand that [LBI Group] pay to [Lehman Commercial Paper] an amount equal to the fair value of the Formula One assets."

Delta Topco's shareholders are bound by an agreement which gives CVC a veto over the sale of any stakes in the company. However, when it requested the transfer of the F1 shares to LBI, Lehman argued that US bankruptcy law would overrule its obligation to CVC. This claim was never tested in court so unless Lehman uses it again and is successful it means CVC still holds the keys as to who will be the future owner of F1.

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