JANUARY 31, 2005

Honda paid $180m for BAR stake

Honda Motor paid "in the region of $180m" for its 45% shareholding in the new British American Racing holding company. Details of the sale have emerged thanks to court records relating to the attempt by Craig Pollock and Gerald Forsythe to stop British American Tobacco from putting the former holding company of the team into administration in the middle of December.

The case was heard by Mr Justice Evans-Lombe at the High Court in London and revealed that BAR never made a profit in its seven years of operation. The last available financial statements reveal that at the end of 2003 the company had debts of a shocking $314m. The spending and the lack of success resulted in the decision at the end of 2001 to bring in David Richards as chief executive. After that BAT set about trying to reorganise the ownership of the team and in the spring of 2003 made an offer to buy out the original partners. This offer was refused and so BAT then changed its strategy and at the end of 2003 converted $130m of the debt into new equity. As the other shareholders did not stump up cash in this operation their share of the business reduced from 50% to 11%. BAT began talking to Honda about a deal for the future and both sides agreed that they did not want the previous shareholders involved. According to Mr Justice Evans-Lombe BAT had by this time concluded that "because of the statutory restrictions on tobacco advertising BAT has no interest in remaining a shareholder of the company in the long term".

This underlines the belief in F1 circles that the team will eventually be wholly owned by Honda.

Once the agreement between Honda and BAT was concluded in November, BAT immediately set in motion its plan to rid itself of the previous partners. It demanded that BAR repay $26.7m in debt. The team could not afford to pay the debt and so was faced with insolvency. BAT then made an offer to the minority shareholders: it is believed that Adrian Reynard, Rick Gorne and Malcolm Oastler (although they are not named in the legal papers, being represented instead by various companies). Pollock and Forsythe (who together owned a British Virgin Island company called Mount Eagle Inc which by then owned 7% of the shares) turned down a BAT offer of $2.65m. As a result BAT put BAR into administration. Pollock and Forsythe challenged the administration decision but Mr Justice Evans-Lombe concluded that their challenge had no merit because BAR owed BAT $26.7m with an additional $145m due at a later date. He noted that without BAT support the BAR holding company was "substantially insolvent" and that BAT was entitled to proceed with administration as the BAR shares had no value.

Hidden away in all the paperwork however was the revelation that Honda would pay "in the region of $180m" for a 45% shareholding in the new company. Honda and BAT told the judge that they would settle with all "outside creditors" in full, although the only substantial debt other than that owed to BAT was $50,000 which was owed to Pollock.