JULY 31, 2000
The battle for Formula 1 begins
THERE is much maneuvering going on in the upper echelons of Formula 1 at the moment as car manufacturers discuss a possible takeover - hostile or otherwise - of the sport. The commercial control of the sport is currently in the hands of Bernie╩Ecclestone's Formula One Group of companies, which are overseen by the SLEC holding company.
This is 50% owned by Ecclestone and 50% owned by German media company EM.TV, which is presided over by Thomas╩Haffa. He has an option to buy an additional 25% of SLEC but we believe that before that option can be exercised Haffa will have to fulfil a number of conditions which probably include Bernie Ecclestone staying on as chief executive for as long as he wants to be.
Haffa bought 50% of SLEC in March for $1.65bn and it is logical to suggest that if he wishes to exercise the option he will need to find another $825m. This is not going to be easy as EM.TV already has considerable borrowing which needs to be paid back. Haffa has not ruled out the possibility that he could sell his shareholding in SLEC. When he bought into the company it was in expectation of a fairly rapid flotation but this is still being delayed by F1's problems with the European╩Commission and by the fact that even if there is an agreement with the authorities, Bernie Ecclestone will now probably need to renegotiate a financial deal with the Formula 1 teams before SLEC can be floated. The current Concorde╩Agreement, the document which binds Ecclestone and the F1 team owners to the World Championship, lasts only until 2007 and to ensure a successful flotation Ecclestone will probably need a longer-term deal.
These delays have put pressure on Haffa because F1 is not the cash-cow that he had hoped it would be and this has led some of his shareholders to criticize the purchase. The result has been a slide in the EM.TV share price in recent months and Haffa cannot afford to let that continue for too long before EM.TV becomes a target for a takeover in the fast-moving electronic media sector.
In an effort to keep ahead of the game Haffa last week launched EM.TV into the American media world with the purchase of an 8% shareholding in Crown Media Holdings, a family-oriented pay-television company in the United States. Crown╩Media controls three cable TV channels: the Hallmark Entertainment Network and the Odyssey and Kermit channels. It has more than 59m subscribers around the world and owns programming which includes Laurel & Hardy. The company was floated earlier this year but remains under the control of the Hallmark card company. It made a loss last year of $56m on revenues of $31m but Haffa says that there is enormous potential for growth. The deal seems to be a reaction to the recent move by the French Vivendi company's purchase of Universal Studios.
Haffa admitted last week that EM.TV is going to revise its plans for 2001 in the light of what is happening in the industry and it makes a lot of sense for him to sell his F1 stake to get a war chest for further acquisitions in the media world. At the moment Haffa does not have access to large amounts of cash and his purchase of the Crown Media shares was achieved entirely with shares, the agreement being that he would hand over EM.TV's interests in Odyssey (22.5%) and The╩Kermit╩Channel╩(50%) in exchange for shares in Crown.
Ecclestone may have an option to buy back the EM.TV shares but it is unlikely that he wishes to re-invest the money he has made from the sale. Even if Haffa sells, Ecclestone will remain in control of the F1 companies although more than half the income generated would then be going to others. On the other hand it is not inconceivable that a consortium could be put together which could make a hostile bid for EM.TV. The company is valued at around $8bn but this is not much when you look at some of the deals currently happening in the world of high finance. EM.TV could then be taken apart with the media operations being sold to one of EM.TV's bigger rivals and the racing business handed on to those involved in the sport.
The dangers of racing companies becoming involved in big business are currently being seen in the United States where there are rumors about the International Speedway Corporation, which owns are operates 10 major motorsports facilities including the Daytona, Michigan, Talladega, California, Homestead and Nazareth ovals and the road track at Watkins Glen. ISC is an important player in the highly-successful NASCAR business and there are suggestions that a major TV network (rumored to be ABC) may buy ISC in order to dictate better terms from NASCAR.
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