Malone Taking F-1 Stake Said to Hang on $1 Billion Value GapAlex Sherman, Matthew Campbell and Alex Duff
John Malone’s Liberty Global Plc and Discovery Communications Inc. are working to bridge a $1 billion valuation gap with the owners of Formula One, as they seek to buy a 49 percent stake in the auto-racing series, people with knowledge of the matter said.
Talks with CVC Capital Partners Ltd. and Lehman Brothers Holdings Inc. are continuing, said the people, who asked not to be identified because the process is private, and a deal may not be reached. CVC owns about 35.5 percent of Formula One and bankrupt Lehman owns 15.3 percent. Liberty Global and Discovery want to pay about $4 billion for the stake, valuing the business at $8 billion. CVC, the London-based private-equity firm, and Lehman want about $500 million more for the stake, the people said.
The acquisition would give Liberty Global and Discovery sports content to go along with their other European cable-TV assets. Discovery boosted its stake in Eurosport International, a European sports media group, to 51 percent earlier this year. The two companies together bought U.K.-based TV company All3Media last month, in a deal valuing the producer of shows such as “Undercover Boss” and “Embarrassing Bodies” at 550 million pounds ($934 million).
CVC also is contemplating an initial public offering of Formula One, said the people, though that is unlikely before the resolution of a trial involving Chief Executive Officer Bernie Ecclestone.
Despite the valuation gap, the sides have made progress toward a deal in recent weeks, according to three of the people familiar with the situation.
Representatives for CVC and Liberty Global, controlled by billionaire media investor Malone, declined to comment. Spokeswomen for Lehman and Discovery also declined to comment.
Formula One pits 200 mile-per-hour racing cars made by teams including Ferrari SpA and Daimler AG’s Mercedes against each other on circuits from Monte Carlo to Abu Dhabi and Austin, Texas, selling premium race weekend tickets for as much as $4,590 and attracting stars such as actor Will Smith and Prince Harry of the U.K. Mercedes driver Nico Rosberg of Germany leads the championship after 7 of 19 races this season. As many as 50 million viewers watch the 90-minute races on television.
Formula One CEO Ecclestone said by phone that Liberty and Discovery had approached CVC, although he didn’t know the details of the negotiations and didn’t anticipate becoming part of the discussions at a later date.
Formula One’s net income from television rights deals and race hosting fees before interest, taxes, depreciation and amortization declined 8 percent to $1.1 billion in 2013 after the series paid more prize money to teams, and a race in Valencia, Spain was dropped, according to a regulatory filing on April 19, 2014.
CVC bought a 63.4 percent stake in Formula One using $2.5 billion of loans in 2006 and has since sold some of its shares. It first contemplated an initial public offering of the motorsport franchise in 2012 before postponing the IPO due to uncertainty amid Europe’s debt crisis. At that time, the company considered selling 20 percent of the company, hoping to raise more than $2 billion.
CVC sold 21 percent of Formula One to BlackRock Inc., Waddell & Reed Financial Inc. and Norges Bank Investment in that year for $1.6 billion, valuing the business at almost $8 billion.
Ecclestone, 83, is currently on trial in Munich for allegedly paying a $44 million bribe to Gerhard Gribkowsky, the former chief risk officer of Bayerisches Landesbank. Ecclestone has said a possible IPO is on hold pending the outcome of the trial, which is scheduled to run until at least September. A verdict may come even later.
Gribkowsky, who managed the lender’s interest in Formula One, said in his own court case in 2012 he was paid $44 million to steer the sale of the bank’s 47 percent stake in the racing circuit to CVC Capital and agreed to a sham contract under which Ecclestone received a kickback from the bank of $41 million.
In January, after the German court ordered Ecclestone to stand trial, he agreed to step down from the Formula One board.