Irish-American billionaire John Malone’s Liberty Global plc (NASDAQ:LBTYA) (NASDAQ:LBTYK) and Discovery Communications Inc. (NASDAQ:DISCA) (NASDAQ:DISCK) are working to bridge a $1 billion gap with Formula One’s biggest shareholders CVC Capital Partners and Lehman Brothers as they seek to buy a 49% stake in the auto-racing series.
London-based private equity firm CVC’s desire for an initial public offering of Formula One is unlikely before the resolution of a trial involving Chief Executive Officer Bernie Ecclestone.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
Lehman’s astute investment
CVC currently owns about 35.5% of Formula One and bankrupt Lehman owns 15.3%.
As reported earlier, Lehman Brothers, the investment bank whose downfall was based on ill-fated investments in opaque mortgage-backed securities that many say was a catalyst for the 2008 financial crisis, did make an astute investment decision in 2006 to back a Formula One racing group. The investment ultimately generated a 550% return, delivering $2 billion of additional revenue to the bank’s creditors.
Citing known sources, Bloomberg reports that John Malone’s Liberty Global plc (NASDAQ:LBTYA) (NASDAQ:LBTYK) and Discovery Communications want to pay about $4 billion for their 49% stake, taking Formula One’s valuation to $8 billion. However, CVC Capital Partners and Lehman Brothers want about $500 million more for the stake.
CVC’s Formula One acquisition through loans
The private-equity firm CVC Capital Partners bought a 63.4% stake in Formula One using $2.5 billion of loans in 2006 and has since sold some of its shares. Its efforts to sell 20% of the motorsport franchise in 2012 to garner over $2 billion failed thanks to Europe’s debt crisis.
The private-equity firm sold 21% of Formula One to BlackRock, Inc. (NYSE:BLK), Waddell & Reed Financial, Inc. (NYSE:WDR) and Norges Bank Investment later in 2012 for $1.6 billion, valuing the business at almost $8 billion.
Formula One’s net income from TV rights deal and race hosting fees before interest, taxes, depreciation and amortization dropped 8% to $1.1 billion in 2013, after the series paid more prize money to teams and a race in Valencia, Spain was dropped.
If the proposed acquisition comes to fruition, it would give Liberty Global and Discovery more high-quality sports content to go along with their other European cable TV assets.