Market trading in F1

THOMAS HAFFA is willing to sell his shareholding in the Formula One group of companies, but the German media baron is asking $2bn for the 50% share in Bernie Ecclestone's SLEC Holding company. Haffa bought the shares in March for an estimated $1.65bn, aiming to use F1 revenues to help fund his other activities.

The Formula One empire is very profitable. The companies involved made profits last year of around $270m. The group has to make repayments on a $1.4bn Eurobond issue but half the annual profits of the company could still be worth around $100m a year. This makes the $2bn price tag rather high, but there is potential for considerable growth so profits should rise.

There is believed to be a consortium of car companies and F1 teams interested in buying Haffa out of F1 but it remains to be seen if they can raise the $2bn needed. However if enough of the teams agree to work together they might be able to borrow against future income that would result from the purchase. Having large car companies involved will obviously help that process.

At the moment the F1 teams receive only around $15m a year from the TV revenues. Owning half of the F1 group might double that income, providing them with the money needed to make the repayments on a loan. This means that, in effect, the teams have nothing to lose because their current earnings are bound by the Concorde Agreement which lasts for another six years. If they invest in buying Haffa's shares they will not be any richer on an annual basis but will each end up owning a part of the company.

Haffa's demand for $2bn may also be negotiated downwards. Haffa is not in a very strong position as his EM.TV company is currently valued at only $6.5bn although last week it dropped below $6bn when the EM.TV share price fell to under 50 Euros for the first time since November last year. By the end of the week the shares had bounced back to 54 Euros but this is still not much when compared to the high of 120 Euros in March. If the share price drops too far Haffa is in danger of becoming victim of a hostile takeover. EM.TV has considerable assets, including a massive 12,250 hours of TV programming. In comparison The Walt Disney company controls only 3,000 hours and AOL Time Warner has only 4,250. In addition there are considerable EM.TV holdings in merchandising, syndication and publishing which would be a good investment for one of EM.TV's larger rivals.

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