Ecclestone faces another Fraud charge over 2005 sale of F1 to CVC

thejudge13 reported in an article Oct 9th “Ecclestone to load F1 with a mountain of debt” that German bank, Bayern LB was suing Bernie Ecclestone for $400m and that Ecclestone and his partners appeared to be cashing in as quickly as possible. Today Bluewaters, an investment fund has filed a lawsuit in New York against CVC, Bernie Ecclestone and BayernLB Gerhard Grikowsky. The claim is that Ecclestone conspired to prevent them from buying the rights to F1 in 2005.

Bluewaters says it had put together a bid for F1 for $1bn ahead of the CVC purchase which was to be funded by Alpolo Capital Management and King Street Capital Management. The claim states that Bluewaters had negotiated with the now imprisoned Gribkowsky of the Bayern LB bank, they were prepared to offer more than any other bidder for the sport.

It is alleged that Ecclestone had engineered a sale to private equity firm CVC Capital Partners so they would retain him in his role. “Ecclestone was motivated by a thirst for power. He wanted desperately to remain “F1 Supremo”, the Bluewaters claim states.

To understand this mess, we must go back to 2001 when the German magnate Leo Kirch Media acquired 75% of the firm Speed ​​Investments, which at the time controlled F1 and its affiliates. To raise the necessary funds Kirch placed these shares as collateral with the three lending banks, Lehman Brothers, JP Morgan and BayernLB, and the sonsortium was known as the Bank Group.

When Leo Kirch group went bankrupt in 2002, Bank Group therefore found themselves in possession of 75% of F1 along with the Ecclestone family fund, the Bambino Trust. However, Ecclestone had clauses that allowed him to continue running F1 even though the banking consortium held the majority of shares in the F1 – they were not able to exercise operational management.

A legal battle ensued for the control of F1 and the Bank Group were victorious in court in December 2004.

At this point 2 U.S. banks approached Bluewaters to buy the shares held by Bank Group Investments in Speed. Long months of negotiations were to follow and in April 2005 Bluewaters submitted a letter of offer to buy all shares of BayernLB in F1 (46.65% of F1 in total). Within the week BayernLB made a written response with a number of requirements to complete this transaction.

Bluewaters responded with the appropriate documentation and to demonstrate the seriousness of the offer they attached a copy of the financing agreements entered into with the private equity funds Apollo and King Street, which brought $ 500 million each to the operation.

The wheels of high finance do not move quickly at times, but by October 2005 John Gregg sent an email to Gerhard Gribkowsky in which he stated that Bluewaters made an offer of a billion dollars to buy the 75% that were held by three banks. So not to blow this case by a competitor, he even said he was willing to pay 10% more than any other candidate for redemption. Having received no reply from Gerhard Gribkowsky he reiterated his offer on 15 November 2005.

The German bank published a press release November 25, 2005 announcing that the bank’s shares were sold to CVC for $831m. Then JP Morgan accepted an offer from CVC for $210m and Lehman Brothers followed suit collecting $209.250m.

In total, CVC paid just over $1.25bn to buy the 75% of the F1 held by Bank Group, 25% more than Bluewaters formal offer. However, by refusing to respond to the corresponance of Bluewaters for 2 months the lawsuit states that Gerhard Gribkowsky acted contrary to the interests of his company by not exploring their improved offer to pay 10% more than anyone else.

Bernie Ecclestone is also named in the lawsuit as it was recognised in the trial of Gerhard Gribkowsky he had paid $44m to the head of BayernLB. According to Bernie he did this to stop Gribkowsky lying about him to the British tax authorities that would lead to an investigation that may cost Bernie billions of dollars.

Interestingly, from Brazil, Ecclestone has told Reuters today he will fight this. When the BayernLB suit was issued he mocked it suggesting they may win, they may not – if they do they get some money if not it costs them a lot.

Bluewaters claims that Ecclestone knew that he would be ousted were their consortium succeed in their F1 acquisition which is why the CVC bid was pushed through. The $650m claim in New York is based upon the subsequent shareholding activities by CVC. The claim cites, a $1bn dividend was paid CVC in 2007 and in 2012 there have been sales transactions by CVC  for  – 21% for $1.6bn and another 5.5% for $500m.

Maybe the lads from Bluewaters should read thejudge13 as there has been another 9% sold to the Singapore sovereign wealth fund and last week we discovered 3% to the Texas teachers pension fund (link) and 6% to a Canadian Pension fund. Looks very much to me as CVC are worried about having their shares in F1 revoked due to fraudulent trading and are selling out as quickly as possible.

Here’s a photocopy of the actual lawsuit filed: (link) – very long and most interesting

13 responses to “Ecclestone faces another Fraud charge over 2005 sale of F1 to CVC

  1. It’s a good job you dont rely on a F1 Press Pass to do your job 🙂

    Bernie would take it off you faster then Vettel moaning about a back marker….

  2. 10% more, is not a final bid, and more like insider trading. It is unfair to the other bidding party as they have no chance to counter.

    • Fair point.

      The reason CVC were favoured was Bluewaters specifically refused to give Ecclestone assurances he would still continue as he has for CVC – maybe I didn’t make that too clear, if so sorry

    • Nothing like insider trading at all – it’s basically a counter-offer in what is essentially an auction. “You offer me a billion, he’s offering 1.1bn, do you want to make a new offer?” At some point, one party will stop and you have your winner. Besides, it still has to be confirmed. The 10% over statemement will have its limit at some point.

      • Isn’t the point that the process wasn’t used hence the best price not achieved. Making a nonsense of Ecclestone’s claim CVC provided best value for the bank consortium and the spectre of more german trouble ahead.

        But where was the transparency and who would know what interested parties there were had they not started crawling out of the woodwork 7-years later.

        Question though, theres much said of Ecclestone’s objective of retaining control of F1, but why?

        Is it the salary £5m, or the control he exercises. If it’s the latter then how satisfying will it seem to him having to answer to CVC and what satisfaction is there in control without power? I ask because I can’t see Ecclestone guiding a sale process involving a high risk strategy that involved bribery without some payback. So for example just how big is the combined Ecclestone/Bambino holding in CVC/Delta Topco and how was it amassed?

        I’d suggest Ecclestone has always operated independently of CVC not as a consequence of his expertise but of his financial stake in the business.

        Followed a link to this article, liked the tone and content so congrats, will bookmark, even sign up for updates.

        • Thanks for your kind comment TJ

          It is definately the case that Bluewaters were not given a fair opportunity to increase and better the CVC bid – that is the crux of their claim.

          Ecclestone retained operational control because CVC saw it as they were buying his experience of how to extract more and more money from various F1 sources. The original contract Bernie signed with Max Moseley when head of FIA allowed for this as an option – it was seen as protecting the operational aspects of F1 from big money institutional interference.

          Even though CVC have sold around 45% of their shares this year and Ecclestone/Bambino have around 15%, no operational voting controls have been passed on

          Its not about the money for Bernie, it is walking the grid with princes and kings – being treated in a deferential manner – being entertained by the richest and most powerful people in the world. All because he still has influence.Being rich alone is not enough for Mr. E

  3. This is very intresting. If we add into mix the Murdoch’s were snooping the paddock during Abu Dhabi for the rumored production control of the tv coverage. Could the selling of shares this be a way for Bernie to cash in 1 last time personally to gain as much money to leave for Tamara. (lets not kid ourselves about that.) Being either before he loses contol in fom with shareholders looking for his removal. His fortune with having to pay up. (i think he a deal and avoid prision) Or if it drags out. Until his death.

  4. not just to continuebon a hot debate butnit sounds to me that ron dennis seems sour of lewis signing mercedes because in the tv itw he talks about jb more than he talks of lewis… am i wrong what you think guys ?

    • Yes. Watch his eyes and where he looks during the time he talks about Lewis. Distant and trying to look matter of fact whilst in reality it doesn’t appear that way.

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