CVC Capital Partners Ltd.’s plan to hold an initial public offering of Formula One may be hurt by a bribery investigation involving the auto-racing series’ boss Bernie Ecclestone.
Ecclestone will be charged by prosecutors in Germany for his part in Bayerische Landesbank’s 2005 sale of the sport to CVC, German news magazine Der Spiegel reported May 13. The chief executive officer’s lawyers Sven Thomas and Norbert Scharf said May 15 they haven’t received the indictment, which Der Spiegel said is being translated into English.
The 82-year-old is negotiating an accord known as the “Concorde Agreement” through 2020 with teams, which will race this weekend at the Monaco Grand Prix. Ecclestone hasn’t appointed a deputy, and it could take years for a replacement to “get up to speed,” according to former team owner Paul Stoddart.
“CVC is between a rock and a hard place,” Stoddart, who ran the now-defunct Minardi squad from 2001 to 2005, said by telephone. “If Bernie Ecclestone was forced to stand down, the Concorde Agreement would be throw into complete turmoil.”
The investigation, which saw BayernLB’s Formula One manager Gerhard Gribkowsky sentenced to 8 1/2 years in prison in 2012, could result in the series deciding Ecclestone should step down permanently or temporarily, according to a prospectus of an IPO suspended last year on market conditions.
Ecclestone said “everyone” on the Formula One board voted at a meeting in Geneva to retain him as CEO unless he is convicted, the Sunday Times reported May 19. CVC spokesman James Olley declined to comment on what the London-based buyout firm will do if Ecclestone is charged with a crime.
Gribkowsky admitted accepting $44 million from Ecclestone to steer the sale of BayernLB’s 47 percent stake to CVC and agree to a sham contract under which the CEO allegedly received a kickback. Ecclestone told the court he was caught up in a “sophisticated” shakedown by Gribkowsky and feared the banker might tell U.K. tax authorities he had influence on his family trust, which could have landed him with a financial penalty. CVC said it didn’t know about the payment.
Ecclestone has brokered every Concorde Agreement since 1981, when the accord gave him the right to manage Formula One’s television rights. The agreement, which covers everything from revenue distribution to intellectual property rights and corporate hospitality, takes its name from the Place de la Concorde, where Formula One rule-maker Federation Internationale de l’Automobile is based.
Since Jan. 1, when the latest edition of the accord expired, most teams have been tied to bilateral agreements that only address key financial and governance issues, according to three people familiar with the situation. They weren’t authorized to speak publicly because the talks are private and ongoing.
On May 10, at the Spanish Grand Prix near Barcelona, Ecclestone referred a question about the progress of the latest agreement to a comment by Ferrari SpA chairman Luca Cordero di Montezemolo who told reporters that a deal was “very close.” Ferrari owns the sport’s oldest and most successful team. Most of the 11 teams haven’t seen a first draft of the proposed accord, the people said.
CVC is scaling back its interest in Formula One, selling stakes worth $1.6 billion to BlackRock Inc. (BLK), Waddell & Reed Financial Inc. (WDR) and Norges Bank Investment Management last year. The buyout firm has reaped more than $4 billion on its original investment of $1 billion and expects to make as much as $7 billion, CVC partner Donald Mackenzie said in an Oct. 29 interview. Ecclestone said by telephone last month CVC wants to go ahead with the IPO this year.
Ecclestone’s biographer Tom Bower said it would be difficult for CVC to hold an IPO without Formula One’s chief executive officer.
“It’s not a simple matter like a normal company where you can hand over the management,” Bower said by phone. Ecclestone “holds all the strings in Formula One. If he is forced out, it would be a major earthquake.”
Ecclestone’s influence extends to owning the offices where Formula One is based by London’s Hyde Park -- he lets the premises to Formula One for 500,000 pounds ($754,000) a year, according to last year’s IPO prospectus. In the prospectus, Formula One’s owners said they have a succession plan for when he departs, without giving any details.
Ecclestone standing trial could strengthen the arm of teams and the FIA as they negotiate new terms, according to Xander Heijnen, a partner at Munich-based Communications & Network Consulting AG who has advised carmakers about participating in Formula One.
“If there is a power vacuum, the FIA and teams could see this as a chance to strengthen their positions,” Heijnen said.
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