The mystery of why BayernLB has not taken legal action over the sale of F1


Next week sees the end of the High Court trial which has been gripping Formula One for the past month. It has yielded plenty of headlines but big questions still remain unanswered.

The case has been brought by German media rights firm Constantin Medien. It claims that a 47.2% stake in F1 was undervalued when it was sold by German bank BayernLB to the private equity firm CVC for £467m ($765m) in 2006. Constantin had an agreement with BayernLB which entitled it to receive 10% of the proceeds if the stake was sold for more than £671m ($1.1bn). As the stake was sold for less than this Constantin did not get any money but it believes that it should have.

Constantin claims that Bernie Ecclestone and his Bambino family trust paid a £26.8m ($44m) bribe to Gerhard Gribkowsky, the BayernLB banker who was in charge of the sale. The lawsuit says that the bribe was paid in return for Gribkowsky agreeing to sell the stake to CVC as it had agreed to retain Ecclestone as F1's boss. According to Constantin, if CVC had not bought BayernLB's F1 stake other buyers would have come forward and paid more for it.

Constantin refers to a valuation from 2006 by accountancy firm Ernst & Young, which CVC has described as "pie in the sky," to conclude that F1 was in fact worth £3.6bn ($5.9bn) giving BayernLB's 47.2% stake a value of £1.7bn. If this is true then Constantin lost out as it should have got 10% of the difference between £671m and £1.7bn which comes to around £100m. This is the basis behind its lawsuit against Ecclestone, Gribkowsky, Bambino and the trust's former legal adviser Stephen Mullens. However, if it is true that F1 was in fact worth £3.6bn then the biggest loser would have been BayernLB because it only received £467m for its 47.2% stake.

Last year BayernLB wrote to Ecclestone demanding that he pay the bank £213.5m ($350m) because it believes its F1 stake was undervalued. The catalyst for the letter was apparently claims from Gribkowsky that he could have sold the stake for a higher price. However, you would have thought that if a bank wanted £213.5m back from someone after a seven-year wait it wouldn't merely write a letter, it would surely take legal action to get the money. So why hasn't BayernLB done this?

The answer to the question remains to be seen but it could well speak volumes that that there has been no legal action against Ecclestone and Bambino from the company which would have lost out most if they had conspired to undervalue its F1 stake.

It is worth pointing out here that Gribkowsky isn't the only former BayernLB executive who has commented on the value of the bank's F1 stake. At the start of the Constantin trial, Robert Miles QC, acting for Ecclestone, told the court that following the sale to CVC, BayernLB's former chairman Werner Schmidt said "we were given the opportunity to get out of the shareholding with extremely high proceeds. When I say extraordinary high, I'm measuring the proceeds against the book value which, if I remember rightly, was doubled."

Mr Miles added that at the end of 2004 BayernLB valued the stake at £223m ($365.6m) and he read out evidence from Harald Glöckl, a director at the bank, who said that "the net purchase price of 765 million is so far the highest price we could negotiate with prospective customers for our holding. At present we do not have an alternative offer and it appears to us very unlikely that we will receive a comparable offer in the foreseeable future."

Mr Miles also quoted Siegfried Naser, who was chairman of BayernLB's supervisory board, and said that F1 remained obscure for the bank but then "out of the blue, Dr Gribkowsky suddenly came along and said he had a purchaser, namely a financial investor, investing 700 million euros for our shares. I can no longer remember the carrying amount of shares but it was considerably lower than that at around 400 million euros. For us it was therefore great because it meant that we could get rid of our shares and all problems in one go."

It doesn't stop there as Mr Miles also quoted Kurt Faltlhauser, who was the first deputy chairman of BayernLB's supervisory board and said that it was "very satisfied about the result, in particular the purchase price achieved. We, on the administrative board, made clear enquiries in particular about the stability of the sale. We were very satisfied with the purchase price of Formula One shares which were, at the time, already heavily written down in the bank's balance sheet and the purchase price was considerably higher."

Mr Miles capped it off by quoting from a BayernLB presentation for the management board about the possible sale to CVC which said that "the price is the highest price to date which we can negotiate with potentially prospective parties interested in our holding."

With this kind of testimony from its own executives it is perhaps no surprise BayernLB has not filed a legal claim about its F1 stake being undervalued. If it had taken legal action then that could have added even more weight to Constantin's case. After all, Constantin was due to get its money from BayernLB. Given that BayernLB has not taken legal action about the alleged undervaluation one wonders what it thinks Constantin's chances are.

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Published: 04/12/2013
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