Malone’s Purported Interest Drives Formula One Valuation To $8B

By Mani
Updated on

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.

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.

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