Formula One CVC’s Most Profitable Investment Amid Bribery Case

Formula One CVC’s Most Profitable Investment Amid Bribery Case
Racing is underway at the Italian Formula One Grand Prix at the Autodromo Nazionale di Monza on September 9, 2012 in Monza, Italy. CVC Capital Partners Ltd. bought about 63 percent of Formula One in 2005 and 2006 from its lenders for an undisclosed amount, using about $2.5 billion of loans. Photographer: Andrew Hone/Getty Images

Formula One, the motor racing championship embroiled in a bribery scandal, generated CVC Capital Partners Ltd.’s biggest return from a single investment in the past 12 months.

The buyout firm has marked up the value of its stake to 4.7 times its initial investment, according to a presentation at CVC’s annual investor meeting in London last week obtained by Bloomberg News. The leveraged buyout firm has already reaped 1.74 billion euros ($2.3 billion) from the holding after selling a minority stake and refinancing loans.

CVC is seeking to take Formula One public in Singapore even after German prosecutors claimed in June that the sport’s Chief Executive Officer Bernie Ecclestone allegedly sent $44 million to a Bayerische Landesbank executive in exchange for the 2005 sale of the German lender’s stake to CVC.

Donald MacKenzie, the CVC managing partner who led the Formula One acquisition, told a Munich court in January that he wasn’t informed about payments made to former Bayerische Landesbank Chief Risk Officer Gerhard Gribkowsky. Gribkowsky appealed in July a verdict sentencing him to more than eight years in prison. Ecclestone, 81, remains under investigation and hasn’t been charged with a crime.

CVC bought about 63 percent of Formula One in 2005 and 2006 from its lenders for an undisclosed amount, using about $2.5 billion of loans. In May and June this year, the private equity firm sold a $2.1 billion stake to Waddell & Reed Financial Inc., BlackRock Inc. and Norges Bank Investment Management in deals valuing the auto-racing company at $9.1 billion.

Fundraising Plans

CVC, which manages a 10.8 billion euro-buyout fund, is stepping up the pace of asset sales as it prepares to start raising a new fund in the fourth quarter or the first quarter of next year, according to the document. The firm has returned 5.1 billion euros to its backers in the past 12 months, 71 percent more than in the year-earlier period, the papers show.

Buyout firms such as CVC typically use loans secured on the targets they acquire to finance half to two thirds of the purchase price, and cash from their own funds for the rest. The firms seek to improve performance at the companies they acquire, or expand them, before selling them within about five years.

A spokesman for CVC in London declined to comment.

CVC reaped 1.39 billion euros, or 2.7 times its initial investment, from the sale of central European brewer StarBev LP to Molson Coors Brewing Co. in April, the document shows. It received 1.15 billion euros, or 4.3 times its initial outlay, from the disposal of metering company Elster Group SE in June.


CVC spent 1.7 billion euros on new investments in the past 12 months, including a 550 million-euro holding in Ahlsell AB, a Swedish construction products supplier.

CVC sold a 10 percent stake in itself to three sovereign wealth funds, people with knowledge of the transaction said yesterday.

The funds are the Kuwait Investment Authority, the Government of Singapore Investment Corp. and the Hong Kong Monetary Authority, according to a person with knowledge of the talks. The firm has the “clear intention” to remain private, according to the presentation. GIC declined to comment by e-mail, while officials at the HKMA weren’t immediate available to comment outside office hours.

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