F1Teams Threaten to Stall €10bn Ferrari Float

Posted on August 29, 2015.

The following article by Kevin Eason and Deirdre Hipwell was posted on The Times website:

ffAmbitious plans to float Ferrari could be hit by a complaint to the EU competition authorities that accuses the company of raking in tens of millions of pounds of unfair prize money from Formula One.

The Italian sports car maker is set for a float in October where its troubled Italian-US owner, Fiat Chrysler, will offer 10 per cent of Ferrari to external shareholders. The float is part of a money-raising exercise to underpin a €48 billion rescue plan for the Fiat-Chrysler group, hatched by Sergio Marchionne, its chief executive.

Investor roadshows are under way, led by bankers at UBS, Bank of America Merrill Lynch and Santander, with some speculating that the initial public offering could value Ferrari, with its Formula One racing arm, at as much as €10 billion.

However, The Times understands that two F1 teams are poised to make a complaint to the European Commission about how prize money is divided. A dossier outlining the complaints could be lodged with Margrethe Vestager, the EU competition commissioner, within days.

Many of the smaller F1 teams are enraged that the lion’s share of hundreds of millions of pounds worth of prize money goes to the four biggest — Mercedes, Ferrari, McLaren and Red Bull. In the separate constructors’ championship last season, Ferrari finished fourth but it was paid £102.3 million by Bernie Ecclestone’s Formula One Management company, £24 million more than Mercedes, the world champions.

Mr Ecclestone, chief executive of F1, said that the extra payments were a combination of loyalty bonuses and payments to recognise Ferrari’s historic position as the only team to have competed in every season of Formula One in the modern championship era, which started in 1950. Ferrari is also the most successful team.

However, smaller teams believe that the system is extremely unfair and the complaint to the EU is expected to claim that the “distorted” prize payments system is one of the reasons for the financial collapse last year of two teams, Marussia and Caterham.

The Ferrari IPO prospectus makes no mention of a possible EU intervention that could call time on prize money payments to Ferrari Formula One Scuderia.

A spokesman for Ferrari refused to comment, but insisted that the float would go ahead. One source close to the company said: “This is nothing to do with Ferrari. If there is a complaint, it should be against Formula One and not one of the teams.”

Industry experts said that because the sports car company and F1 team were inextricably linked, it would raise fresh questions about whether the flotation will get off the ground.

In the IPO prospectus, the second item under “cautionary statements” lists the importance of the “success of our Formula One racing team and the expenses we incur for our Formula One activities”.

Max Warburton, a respected automotive analyst at Bernstein, issued a strong warning to investors to avoid the float, dubbing Ferrari a “low growth, low free cashflow, modest return business with massive technology costs and complex regulatory challenges”. He issued ten reasons for caution and said that the company should not be valued as high as €10 billion.

Mr Warburton was sceptical that the IPO would happen and said that the prospectus seemed “rushed” and left out key information, such as how much cash Fiat would “extract from Ferrari before the listing”. He also warned that Fiat may not follow through with plans to sell off its remaining 80 per cent stake in Ferrari next year.

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