Formula One: Pre-IPO Deal Between BlackRock, Norway And CVC

Includes: BLK, CVC, GS, MS, UBS, WDR
by: Ramon Vredeling

Private equity firm CVC Capital (NYSE:CVC) has sold a $1.6 billion (1.0 billion pounds) stake in 'Formula One' to three investors including BlackRock (NYSE:BLK) ahead of the motor racing company's planned $3 billion IPO in Singapore. This deal sets a benchmark valuation of at least $7 billion for the company as financial advisers begin to target potential cornerstone and retail investors during the pre-marketing process of the IPO. The shares are expected to debut in June after the company received approval from the exchange for its $3 billion IPO.

The pre-IPO deal cuts CVC's stake in Formula One to about 40% from 63.4%. The two other investors are asset manager Waddell & Reed (NYSE:WDR) and Norway's Norges Bank Investment Management, the asset management unit of the Norwegian central bank (BATS:ENOR). This deal raised some capital, which may be required, and it gives the IPO a little bit more credibility if some well-known investment houses come on board pre-IPO and gives Formula One an enterprise value of about $9.1 billion including $7.2 billion of equity and $1.9 billion of debt.

Goldman Sachs (NYSE:GS), UBS (NYSE:UBS) and Morgan Stanley (NYSE:MS) are lead-managing this IPO, which could be Singapore's biggest IPO since Hutchison Port Holdings Trust raised $5.5 billion in early 2011. Malaysia's Felda Global Ventures Holding, plans a $3 billion IPO this year, and Facebook (NASDAQ:FB) raised $16 billion last week in a record Internet IPO.

This IPO is the long awaited public floatation of a franchise led by billionaire Bernie Ecclestone. Formula One holds 20 races around the world and has more than 500 million television viewers. The F1 IPO is set to be priced before the end of June after the company and its bankers meet with investors and fund managers to gauge demand for the offering. It's probably not going to be priced cheap given Formula One's brand premium and the IPO always be delayed in case of unfavorable market conditions.

Standard & Poor's publicized a report on May 15 in which it put the company on positive watch and mentioned Formula One could have its B+ long-term debt ratings lifted one notch after the IPO because of an expected improvement in its debt profile. S&P further stated that the positive watch reflected their view that after the IPO in the next 2-3 years, Formula One's adjusted leverage is likely to lessen significantly and durably and that private equity sponsors should exit Formula One's capital in the medium term.

Meanwhile, Formula One team bosses remain rather cool on the idea of becoming actively involved in any flotation of Formula One on the Singapore stock exchange, instead preferring to focus on their own interests. The whole idea was received pretty frostily by several of the leading teams' decision makers ahead of the Malaysian Grand Prix.

McLaren boss Martin Whitmarsh was dismissive of the idea, feeling McLaren had enough existing business interests to focus on. He also mentioned that flotation and change of ownerships generally aren't done with the benefit of the sport in mind, and that race teams need to concentrate on putting on a show and that it's up to the owners to decide on what they do with the assets.

Current Formula One championship team principal Christian Horner also described it as other people's business. "At the end of the day it's not down to us, it's down to the shareholders... it's down to CVC and Bernie (Ecclestone) as it's their business and not the teams. It could possibly benefit us all but we are not involved in the detail... it's an interesting concept."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.