Liberty Media Heightens Investment To $13M For F1
Liberty Media has raised its stake in Formula One by 0.4% to 19.1% through investing $13 million in the auto racing series that it agreed to take over for $4.4 billion in September.
As Forbes reported, the takeover is far from the finish line as it faces a number of hurdles including a severe conflict of interest as F1's regulator the Fédération Internationale de l'Automobile (FIA) needs to give the green light to the deal and stands to make $44 million as a result of doing so. The matter has already been brought to the attention of Europe's anti-trust authorities and earlier this week, their counterparts in Britain, where F1 is based, began an investigation into the takeover.
The $4.4 billion purchase price comprises $1.1 billion in cash with the remainder coming from shares in Liberty which is listed on the Nasdaq and owns stakes in companies such as Time Warner, Viacom and event promoter Live Nation.
The 0.4% stake was acquired on 27 October but this is not a new deal. Instead Liberty agreed to buy it in September when it paid $746 million in cash for an 18.7% stake in F1's parent company Delta Topco. It is controlled by the private equity firm CVC which owns a 38.1% stake in the company. Liberty has not yet acquired any shares from CVC but control will change hands if the takeover gets regulatory and shareholder approval. This is when the remainder of the cash and the shares will be transferred to the sellers.
The $746 million was funded with cash and borrowings including the sale of debentures which are convertible into Time Warner stock. This raised $445 million whilst Liberty's cash in the bank has reversed by $334 million.
Despite being majority owned by billionaire John Malone, Liberty is far from being awash with cash. According to page 22 of the F1 investment presentation Liberty will only have $104 million in the bank if the takeover closes. Its limited resources are highlighted by the fact that it has not even funded the $746 million from its reserves. So anyone in F1 who is expecting Liberty to pour cash into the sport could be sorely mistaken.
The remaining $354 million due to shareholders is expected to come from cash and yet more borrowing. This time a $500 million margin loan with Liberty's shares of Live Nation and Viacom common stock pledged as collateral.
CVC has made more than $4.4 billion from its investment in F1 since buying the business in 2006, the second-largest shareholder, Kansas-based asset manager Waddell & Reed, has yet to get its money back.
In 2012 Waddell invested $1.6 billion in Delta Topco to give it a 20.5% stake and by the time that Liberty agreed to buy the company it had only made a $644.7 million return. Thanks to the high equity component of Liberty's offer, it will only bring Waddell's total cash return to $942.2 million at most which is $657.8 million less than it paid to invest. In contrast, if Liberty was paying entirely in cash it would bring Waddell very close to making its money back
Liberty stresses that closure of the deal is not contingent on this but the road ahead is far from clear as at least four hurdles stand in its way. In addition to having a right of approval over the sale, Delta Topco's shareholder register shows that the FIA owns a 1.07% stake in it worth $44 million based on Liberty's purchase price. That's not all as the share transfer form adds that the FIA can only cash in its stake in the event of a sale by CVC and it has a good incentive to do so. This is because the FIA bought the stake in late 2013 for just $458,197.34, which was 160 times less than it was valued at. Liberty intends to buy the FIA's 1% stake as its investment presentation reveals on page 17 that it "has agreed to acquire all outstanding shares of Delta Topco." In summary, if the FIA approves the sale of F1 it will make a $43.5 million profit and this has fuelled the suggestion that it is a conflict of interest.