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Pressure grows on Haffa

THE shares of EM.TV & Merchandising AG, the company which owns half of the Formula One group of companies, continued to fall this week and on Wednesday morning had dipped to 52 Euros, which is half what they were worth in March. There were worries that this could lead to EM.TV becoming the target for a takeover.

Haffa bought his shares in Formula 1 from the investment house Hellman & Friedman and from the merchant bank Morgan Grenfell Private Equity which had bought the shares from F1 boss Bernie Ecclestone. Hellman & Friedman paid Ecclestone $1bn in cash for 37.5% of the Formula One holding company but then sold the F1 shares to Haffa for $535m in cash and 7m shares which were then valued at around $88 a share. That meant that the company had made a theoretical profit on the deal of over $100m. Since then, however, the share price has tumbled and now Hellman & Friedman's investment is worth only $875m, which means that it has made a theoretical loss of $125m on the deal. In such a situation the company is unlikely to sell the shares, hoping that either there will be a recovery in the share price or there will be a bid for EM.TV which will boost the share value so that the company can sell them at a profit.

The situation with Morgan Grenfell is slightly different as it invested earlier and so paid only $325m for a 12.5% of the Formula One companies. That shareholding was then sold to EM.TV for $175m and 3m in shares (valued at $265). This meant that Morgan Grenfell made a total of $440m, a profit of $115m, but the fall in the value of EM.TV shares means that the investment is now worth only $340m and if the share price continues to drop it will soon become a loss-making one. It is therefore in MGPE's interest to sell the shares now.

As the share price slides the consortium of car companies and F1 teams waits on the sideline before making a move to buy Haffa out of Formula 1 or, alternatively, to take over EM.TV and then sell off the companies other businesses to pay for the purchase.

After the dip on Wednesday morning there was a marked rally in the share price with a considerable amount of buying going on. The big question now is who was selling and who was buying...

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