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FEBRUARY 28, 2000

Morgan Grenfell tipped to sell FOH shares

THERE has been speculation in recent days that Morgan Grenfell Private Equity, now a minority shareholder in FormulaÊOneÊHoldings, is trying to sell its share of the company. MGPE's parent company Deutsche Bank is rumored to be unhappy with the F1 investments and the company's failure to take up the option to buy an extra 37.5% suggests that interest is waning. When Bernie Ecclestone sold the share to the US investment company Hellman & Friedman he was less than complimentary about MGPE's negotiations, suggesting that the company was "not as hard as it thinks it is".

Morgan Grenfell's chief executive Graham Hutton said that the company intends to hold on to its shareholding and said that he expected the company to be floated within a short time. Patrick Healy, one of Hellman & Friedman's managing-directors, last week commented that the company does not believe there is a need to take the company public immediately.

"We would support floating 50 percent of the company at some point," he said. "We think Bernie is a great entrepreneur, and we think he's shown consistently the ability to create and build value."

Stories quickly began to emerge that MGPE is offering its stake for around $550m - which is $225m more than it paid last autumn - and that the Italian TV company Mediaset is interested in buying. Mediaset is controlled by former Italian PrimeÊMinister Silvio Berlusconi. Berlusconi is involved in F1 via a joint venture with German media baron Leo Kirch, the man who holds the digital rights to F1 racing for the German market. This would make the sale rather complicated as Berlusconi would be both a buyer and a seller in future F1 TV deals and this would undoubtedly be seen as a conflict of interests.

However, it is currently of little importance who owns the shares of the company as Bernie Ecclestone remains firmly in control. Hellman & Friedman is happy to leave him to build on its investment and has other things to worry about as it tries to invest the rest of its new $2.1bn investment fund.

Morgan Grenfell's apparent desire to get out of F1 is interesting in that it controls 50% of the Arrows F1 team, although it is looking to sell some of that. The fear is that the team will lose money this year and that MGPE could become liable for those losses. The problem is that no-one wants to buy the shares because of the potential losses and that the only buyers out there want to buy some of Tom Walkinshaw's shares and so gain control of the company. At the moment Walkinshaw is refusing toÊsell.