Financial News

  • 29 March 2014, 18:16

F1 Investors Drive Off With 200m Dividend

Shareholders in Formula One motor racing are in line for a 200m windfall just weeks before Bernie Ecclestone stands trial in a case which could spell the end of his reign at the sport's helm.

Sky News has learnt that the board of Delta Topco, F1's parent, agreed this week to issue a $332m (199.8m) dividend for last year.

The dividend is technically funded through a redemption of shareholder loan notes, and follows the latest of several financial restructurings undertaken by F1 in recent years.

The biggest recipient will be CVC Capital Partners, the London-based private equity owner of 38% of the sport, which will receive almost 80m.

Among others who will receive windfalls will be the estate of Lehman Brothers, the investment bank whose collapse in 2008 was one of the triggers of the global financial crisis.

Lehman is in line for a payment of approximately $40m (24m), according to sources close to F1, while Mr Ecclestone, the sport's chief executive, is expected to receive about $17m (10.2m) by virtue of his 5.3% stake.

F1's other shareholders include the fund managers BlackRock and Waddell & Reed, Norway's sovereign wealth fund and the municipal retirement fund of Texas's teachers.

The dividend plan underlines the continuing financial strength and cash generation demonstrated by F1 despite the broader challenges now confronting one of the world's biggest spectator sports.

Mr Ecclestone's trial on bribery and corruption charges is scheduled to begin in Munich towards the end of next month.

It relates to a $44m (27m) payment to Gerhard Gribkowsky, a banker who was involved in organising F1's sale to CVC nearly a decade ago.

Mr Gribkowsky has since been jailed and may appear as a witness at Mr Ecclestone's trial.

The F1 chief executive, who has consistently denied any wrongdoing, has conceded that he made part of the relevant payments to Mr Gribkowsky, but said that he had done so because he was concerned that the receipient would make unfounded allegations about his tax affairs to Her Majesty's Revenue and Customs.

He has recently been quoted by British newspapers as saying that he might opt to step down at the end of the year, regardless of the trial's outcome.

The prospective termination of Mr Ecclestone's vice-like leadership is not the only headache facing the sport.

Drivers, executives and media groups complained that engine changes to cars first deployed at the season-opening Australian Grand Prix this month have diminished the sport as a spectacle.

CVC has already made billions of pounds from its original investment in F1, and is waiting to dust off plans to float the company on the Singapore stock exchange.

It has conceded that that idea is unworkable until the legal issues surrounding Mr Ecclestone are resolved.

Sources familiar with the situation said that Delta Topco's board had discussed issuing a substantially higher dividend than the 200m being paid out.

Its decision not to issue additional debt to fund such a move was made with one eye on a revival of the flotation and demonstrated "restraint", one said.

F1's profitability and cash-generative nature has meant that the company's newest investors have already received a series of multimillion pound payouts, suggesting that it would continue to pay attractive dividends if it does eventually pursue a public listing.

Peter Brabeck-Letmathe, the chairman of the Swiss consumer goods giant Nestl?ho also chairs F1's parent company, is taking a more hands-on role with the company during the six months that Mr Ecclestone's trial is expected to last.

In a statement issued in January, the board of Delta Topco, F1's parent, said that Mr Ecclestone would step down as a director but remain in day-to-day control of the sport he has run for the best part of four decades:

"Mr Ecclestone has reassured the Board that he is innocent of the charges and intends to vigorously defend the case which will commence in late April 2014," it said.

"After discussion with the Board, Mr Ecclestone has proposed and the Board has agreed that until the case has been concluded, he will step down as a director with immediate effect, thereby relinquishing his board duties and responsibilities until the case has been resolved."

The board said it believed that F1 would be best-served by Mr Ecclestone retaining his management responsibilities but said he would be "subject to increased monitoring and control by the Board".

Approval for significant commercial contracts would become the responsibility of Mr Brabeck-Letmathe and Donald Mackenzie, the CVC founder who is Delta Topco's deputy chairman, the board added.

An F1 spokesman declined to comment on this week's dividend discussions.