Deloitte says F1 wasn't undervalued when sold to CVC

25/05/2011
NEWS STORY

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.

If Ecclestone did indeed pay $40m to Gribkowsky he has nothing to worry about from the German investigation - quite the opposite in fact. As Pitpass has previously pointed out, if Gribkowsky really did blackmail Ecclestone, the F1 boss would be the victim of a crime. Echoing this, the German media reports have stated that if Gribkowsky is convicted of blackmail Ecclestone can demand his money back because, as the blackmailer, Gribkowsky would have committed a crime. However, it may not be as simple as that.

Gribkowsky's lawyer Reinhard Hoß says that the banker "had no special knowledge at his disposal." He adds that he only had "publicly accessible information which the British tax authorities were in any case aware of at that time."

This could put Ecclestone in an awkward position as if it is true that he claims Gribkowsky blackmailed him then he may have to explain what he wanted to keep quiet so much that he paid Gribkowksy $40m. Höß' claim that the British tax authorities were already aware of all the information which Gribkowsky had at his disposal also seems to put Ecclestone in an awkward position if it is true that he claims Gribkowsky blackmailed him.

Proving that Höß' claim is false would seem to require confirmation that in fact Gribkowsky did indeed have information which the British tax authorities were not aware of. To get this confirmation from the tax authorities they would obviously need to know what the information was. If Ecclestone paid $40m to Gribkowsky to stop him taking this information to the tax authorities in the first place then why would he be happy about them seeing the information now? It's hard to imagine he would which is one reason why the blackmail theory is hard to follow. It isn't the only reason.

As Pitpass has reported, the prosecutors have reportedly got hold of a draft of a consultancy contract from Ecclestone's legal adviser Stephen Mullens dated November 2005 - the month when CVC acquired F1. According to the newspaper, one party to the contract was Bambino and the other was Gribkowsky's company. It claims that when Gribkowsky eventually signed the contract Bambino had been replaced with the firms in the Virgin Islands and Mauritius.

However, if Gribkowsky blackmailed Ecclestone to get the money it would seem unlikely that the German would have wanted anything in writing proving that there was a transaction. Likewise, it has also been reported that Gribkowsky's company wrote to Ecclestone on 14 December 2007 demanding $2,229,139 which was apparently missing from the total payment. The last thing you would do if you were blackmailing someone is to put it in writing if some of the money is missing since it is evidence that could ultimately be used against you.

Ecclestone has reportedly testified that he had no consultancy agreement with Gribkowsky but even if this was the case it still would not explain why on earth Gribkowsy would have put something in writing which could now be used to incriminate him on blackmail charges.

The reality is that Ecclestone's tax position is pretty straightforward which makes it even harder to follow the blackmail theory. In February 1996 Ecclestone transferred his biggest cash cow, his shares in F1's former rightsholder F.O.C.A. Administration, to a Jersey-based trust whose beneficiaries are his family members. He did this for good reason because his health was not as good as it is now and if he had died his Croatian ex-wife Slavica would have had to pay tax on her inheritance because she had not yet lived in the UK long enough to be domiciled here.

The trust is completely separate to Ecclestone and he recently told Sylt "the [Inland] Revenue obviously had to check everything. It took five years going through that. I didn't deal with it. The trust had to show it was correct." In short, his personal financial situation has already been given a seal of approval from the UK authorities.

There is absolutely no evidence that Ecclestone has ever done anything wrong which Gribkowsky could have blackmailed him with in 2006 or prior to that. However, even if Gribkowsky did have some compromising information which he threatened to take to the tax authorities in 2006 it would most probably be irrelevant now. This is because UK individuals filing tax returns only need to keep their records for five years after the period they relate to. So, even if Gribkowsky (or anyone) had information relating to prior to 2006 about any UK tax payer it could be hard for the authorities to investigate or take action. The person being investigated could perfectly legitimately say they have destroyed all their records relating to the period in question and so cannot defend themselves.

The blackmail theory is even harder to believe in light of a report in the German magazine Focus claiming that the information which Gribkowsky threatened to take to the authorities was a one-page spreadsheet with facts about 19 companies connected to F1. It claims that the details about the companies were bought from business information firm Dun & Bradstreet so it is hard to see how anyone could be blackmailed with information which is already in the public domain. According to Focus, Gribkowsky used this to deduce that "the maze of companies above all arises from tax related motives." It seems a stretch to move from this deduction to blackmailing Ecclestone for $40m.

Ecclestone has said he does "not intend to make any further public comment" on the investigation into Gribkowsky beyond his statement last month which said "I have been cooperating with the State Prosecution Office's investigation of the affairs of Dr Gribkowsky since the outset. When I was informed that there was a first suspicion in relation to my perceived involvement in the matter, I went to see the Senior State Prosecutor and her team in Munich earlier this month to clear up any allegations against me. I will continue to give the State Prosecution Office my full cooperation in whatever capacity it may ask and I am confident that when the full facts have been established, I will be exonerated of blame for any wrongdoing."

In contrast, Gribkowsky's predicament seems to be worsening. Another accusation was recently made against him as it is now believed that he also received a suspicious payment of €250,000 in a property deal as part of a consulting contract in 2008. The Munich court issued a new arrest warrant for Gribkowsky over this and his lawyer filed an appeal against it, just as he has done in connection with the other accusations.

Gribkowsky's assets have been frozen as a result of the continued doubt over the legitimacy of the $50m payment. However, his lawyer is confident that it will be returned to him and he will be cleared. A decision on whether to formally charge Gribkowsky has been expected since early May. Once that happens we will be one step closer to wrapping up this sorry saga.

Article from Pitpass (http://www.pitpass.com):

Published: 25/05/2011
Copyright © Pitpass 2002 - 2024. All rights reserved.