CVC has a punt on Formula One

CVC Capital Partners has bought a majority stake in Formula One Group in a complex two-step process whereby it initially acquired a stake from the disgruntled Bayerische Landesbank and Bambino Holdings and then bought a further stake from JPMorgan. CVC now holds 86% of Formula One Group through its majority stake in Alpha Prema, with other shareholders including Bambino (through a reinvestment), Bernie Ecclestone and the Formula One management team.

The deal represents another lap in a bumpy ride for private equity groups and Formula One. In 1999, Ecclestone agreed to sell 12.5% of the management company to Morgan Grenfell Private Equity (MGPE) and a further 37.5% to Hellman & Friedman. The two buyout groups later pooled their holdings in a company called Speed Investment and sold their 50% share in SLEC to German media firm EM.TV for US$1.6bn.

By late 2000, EM.TV was on the verge of financial collapse and Leo Kirch, the German media mogul, was offered its shares. After months of negotiating, Kirch paid an extra US$1bn to gain a 75% share of SLEC. In April 2002, KirchMedia itself filed for bankruptcy, and its shares in SLEC passed into the hands of three creditor banks, Bayerische Landesbank, JPMorgan, and Lehman Brothers.

Unfortunately for the private equity groups involved, they had taken much of their return in the form of Kirch shares. This ultimately accelerated the demise of Morgan Grenfell.

CVC, which has experience of investing in motor sport through its ownership of the motorcycling equivalent (Moto GP), is taking a big bet on the intensely political world of Formula One at a time of uncertainty for the sport. Five of the major car manufacturers are currently threatening to launch their own series of races in 2008 unless significant changes are made to the way it is run.