DECEMBER 6, 2000

Could the EM.TV crash hurt Arrows?

AS investors begin to take stock of the situation after the collapse of EM.TV's value, the investors in the Deutsche European Partners fund, which is run by Morgan Grenfell Private Equity, are trying to discover how much money the fund has lost as a result of its F1 involvement in the deal. According to our sources and calculations the fund spent $275m on the purchase of 12.5% of SLEC in December last year. This shareholding was then bundled together with another 36.5% share of the firm which had been bought by a Californian investment company and was sold to EM.TV in exchange for $712.5m in cash and around $880m in EM.TV shares. Whether Morgan Grenfell Private Equity took cash as well as shares is not clear but if it sold for cash and shares it would have recouped $178m of its original investment, meaning that the deal had only cost $97m. This would have meant that the company acquired 2.5m EM.TV shares which were valued at $220m at the time and so in theory the firm had made over $100m on the deal. If the deal was for EM.TV shares only and no cash Morgan Grenfell Private Equity might have taken as many as $450m in shares.

The collapse of the EM.TV share price means that $220m worth of shares in March are now worth only $17.5m and a $450m share in EM.TV now has a value of just $35m.

Thus if Morgan Grenfell is still holding on to the shares it has made a loss of between $240m and $300m. If the deal with EM.TV was for shares only MGPE has spent $275m and has only $35m worth of shares left - a loss of $240m. If it took some cash with the shares the loss would be just over $300m.

An MGPE spokesman has declined to comment on whether the fund still holds all the EM.TV shares.

What will be interesting now is to see whether there are any changes of management at MGPE as a result of the EM.TV crash and whether this will have any effect on MGPE's other involvement in Formula 1 as a 50% shareholder in the Arrows team which the team indicated at the time was worth as much as $60m.