grinner
08-30-2004, 03:33 PM
A Formula 1/Henson/Farscape connection? There were some on these assorted FarScape boards that thought I was crazy for saying that there was a connection between Formula 1 and FarScape... but if you read this article, the connection becomes clear. EM.TV played a major role in this saga... the same company that used to own Henson.
Chicanery in Formula One?
Aug 26th 2004
From The Economist print edition
http://www.economist.com/images/20040828/3504SB1.jpg
Legal and commercial disputes are threatening the future of grand-prix racing
Get article background (http://www.economist.com/background/displayBackground.cfm?story_id=3127517)
THE 2004 Formula One (F1) season has not exactly set pulses racing: with five races to go, Michael Schumacher, a driver for Ferrari, looks certain to win an unprecedented fifth consecutive championship. Behind the scenes, however, there has been a much more exciting battle over who runs and controls the sport. Barring a last-minute settlement, the dispute will become public in a British courtroom in mid-September.
Bringing the case are three large banks—Bayerische Landesbank, Lehman Brothers and J.P. Morgan Chase. Through Speed Investments, these have a 75% shareholding in SLEC Holdings, which in turn owns the cascade of companies that run F1 (see table 1).
http://www.economist.com/images/20040828/CSF983.gif
Incredibly, despite this majority shareholding, the banks do not have board control in any of the companies below SLEC. These include Formula One Holdings (FOH), an important, though dormant, holding company, and two crucial operating companies, Formula One Administration (FOA) and Formula One Management (FOM), which hold the commercial rights to F1 and through which hundreds of millions of dollars flow each year.
The nub of the banks' case is that the previous owner of their shares in SLEC did have board control. Yet they do not, and this puts them in a strange position—in effect they are minority shareholders. This makes their shares unsaleable at any reasonable price. This matters to more than just the banks: control of the Formula One companies' boards is essential at a time when the future of F1 is up in the air—contracts that govern it run only until the end of 2007.
So who does control the Formula One empire? Bernie Ecclestone, a British entrepreneur, the chief executive of FOA and FOM, and the dominant figure on F1's commercial side since the mid-1970s, used to own FOM. But in 1996, as the first step in a complex tax-avoidance scheme, Mr Ecclestone transferred ownership to Petara, an offshore company controlled by Slavica Ecclestone, his wife.
Complicated shuffles in the British Virgin Islands and Jersey followed. By 1998, Bambino Trust, whose beneficiaries are members of Mr Ecclestone's family, owned the SLEC group through Bambino Holdings (Bambino). Bambino now owns 25% of SLEC, having raised $3.4 billion from a bond issue and by selling 75% of its stake in 1999-2001.
A “special adviser” to Bambino Trust and Bambino is Stephen Mullens, a lawyer who was a partner until 1999 in Marriott Harrison, a British law firm that has acted for FOA and FOM. He is an appointee of both Mrs Ecclestone and Bambino: Mrs Ecclestone appointed him to the board of Petara in 1995; and Bambino to FOH's in 1998 and to SLEC's in 1999.
In their case, the banks claim that Bambino has improperly and illegitimately wrested control of FOH (and hence FOA and FOM) through opportunistic and questionable legal manoeuvres, at the centre of which stood Mr Mullens. (He is not a defendant in the banks' action.)
Two of Bambino's directors are Luc Argand and his wife, Emmanučle Argand-Rey, both Swiss lawyers. Mr Argand is also a trustee of Bambino Trust. Bambino and Mr and Mrs Argand, who are all defendants in the case brought by the banks, deny the bank's claims. To gain control of FOH, the banks are contesting the validity of Bambino's appointment in October 2002 of the Argands as directors of FOH, which gave Bambino control. If successful, the banks will have to launch further legal actions to win control of FOA and FOM. Only then could they wield powers commensurate with their holding in SLEC.
A shareholders' agreement (the “SLEC agreement”), signed in May 2000, sets out the composition of the boards of the F1 companies. It was drawn up when EM.TV &Merchandising, a high-flying German media company, bought Speed Investments, which owned 50% of SLEC at the time, from two private equity firms. EM.TV also acquired an option to buy a further 25% of SLEC from Bambino for $987.5m.
The SLEC agreement included various rights for Speed and Bambino to appoint directors to SLEC, FOH, FOA and FOM. These rights were written into the relevant articles of association, the legal document that governs the way a company is run.
With more than 25% of SLEC, Speed was entitled to appoint four “A” directors to each of SLEC and FOH; Bambino was similarly entitled to appoint four “B” directors. With not less than 5% but no more than 25% of SLEC, Bambino would be entitled to appoint two B directors to each company. And each of SLEC and FOH was to have a maximum of eight directors. So with 75% of SLEC, Speed could appoint two “ordinary” directors to each company as well as its four A directors.
One of Speed's four A directors on FOH's board had to be from WestLB, a German bank, which in 1999 had rescued a $1.4 billion bond issue for F1, the proceeds of which went to Bambino.
By the end of 2000, EM.TV was engulfed in accounting problems; its shares nose-dived. Kirch, at the time a giant German media group with pay-TV interests, spotted a backdoor way of acquiring control of SLEC. The SLEC agreement required EM.TV to get Bambino's permission if a broadcaster acquired control of Speed. To circumvent this provision, a complicated deal was structured. Its essence was that Kirch funded Speed's purchase of another 25% of SLEC, and Kirch acquired control of Speed from EM.TV via an intermediary.
Twists and turns
The total cost to Kirch was almost $1.6 billion, which it borrowed from the banks; extraordinarily, Bayerische Landesbank, which is half-owned by the state of Bavaria, lent the $987.5m for the option payment. The banks took security on Speed's 75% interest in SLEC.
After the option was exercised in March 2001, Speed (ie, Kirch and EM.TV), as envisaged in the SLEC agreement, controlled SLEC's board, and SLEC the board of FOH. The mechanism by which FOH controlled FOA's board was to become significant.
By now, Speed was entitled under FOA's articles to appoint one A director to FOA, and Bambino one B director. But, under the articles, FOA's shareholder (ie, FOH, which Speed controlled) was able to set the firm's maximum number of directors. A resolution by FOA in June 2001 limited the number of its directors to three. So FOH could appoint one ordinary director to FOA's board, which Speed did. Thus, from June 2001, FOA's board comprised two Speed representatives and Mr Ecclestone, who was a Bambino appointee but was not formally designated a B director.
A similar mechanism existed for control of FOM. However, apparently out of deference to the wishes of Mr Ecclestone, FOA did not take control of the board of FOM's immediate holding company, Petara, which remained in the hands of Mr Mullens and Mrs Ecclestone. And whoever controlled Petara had the ability to control FOM. Nevertheless, from June 2001, FOM'S board had the same composition as FOA's.
Before long, the Kirch group collapsed under the weight of its massive debts; the part that controlled Speed filed for bankruptcy in June 2002. The banks then enforced their security over Kirch's shareholding in Speed so that they would become entitled to exercise Speed's rights. But clearance did not come from the European Commission until late September. During this interregnum, Bambino began its grab for control of FOH, FOA and FOM. Bambino denies this: its defence is that its actions were in F1's long-term interests.
In mid-September 2002, Bambino appointed Mr Mullens as its B director of FOA, taking the number of FOA's directors to four, and simultaneously removed Speed's ordinary director on the grounds that the maximum number of three had been exceeded. As it had appointed two of the three directors, Bambino had control.
One of the four A directors on FOH's board thought that Bambino was hijacking FOA's board and resigned in protest. A week later, Bambino appointed Mr and Mrs Argand as B directors of FOH. As Mr Ecclestone and Mr Mullens were already on FOH's board, Bambino now had four directors and de facto control. But with its 25% shareholding, Bambino was entitled to appoint only two B directors to FOH, and had—Mr Ecclestone and Mr Mullens.
Another A director resigned from FOH in mid-October, which meant that there were now only two A directors on the board. FOH rejected the banks' attempts to fill the vacancies for A directors before a FOH board meeting in late October.
At this meeting, the FOH board voted, by a majority of five, which included WestLB's appointee, to one, to amend FOA's articles. The change, which Mr Mullens suggested, was small but extremely significant. Instead of being determined by a shareholder resolution (and hence within FOH's control), FOA's maximum number of directors was simply to be three. As the change to FOA's articles cannot be reversed without Bambino's consent (or alternatively a court challenge), the effect was to entrench Bambino's control of FOA, even if the banks were to regain control of FOH.
Bambino used similar manoeuvres in FOM, though the process was simpler because Mr Mullens and Mrs Ecclestone already controlled Petara's board. In July 2002, Bambino appointed Mr Mullens as its B director to FOM's board; in mid-September, Petara removed Speed's ordinary representative on FOM's board; and a month later Petara made the same small but significant change to FOM's articles. (Table 2 shows the current directors of each company.)
http://www.economist.com/images/20040828/CSF389.gif
article continues (http://www.economist.com/displaystory.cfm?story_id=3127517)
Chicanery in Formula One?
Aug 26th 2004
From The Economist print edition
http://www.economist.com/images/20040828/3504SB1.jpg
Legal and commercial disputes are threatening the future of grand-prix racing
Get article background (http://www.economist.com/background/displayBackground.cfm?story_id=3127517)
THE 2004 Formula One (F1) season has not exactly set pulses racing: with five races to go, Michael Schumacher, a driver for Ferrari, looks certain to win an unprecedented fifth consecutive championship. Behind the scenes, however, there has been a much more exciting battle over who runs and controls the sport. Barring a last-minute settlement, the dispute will become public in a British courtroom in mid-September.
Bringing the case are three large banks—Bayerische Landesbank, Lehman Brothers and J.P. Morgan Chase. Through Speed Investments, these have a 75% shareholding in SLEC Holdings, which in turn owns the cascade of companies that run F1 (see table 1).
http://www.economist.com/images/20040828/CSF983.gif
Incredibly, despite this majority shareholding, the banks do not have board control in any of the companies below SLEC. These include Formula One Holdings (FOH), an important, though dormant, holding company, and two crucial operating companies, Formula One Administration (FOA) and Formula One Management (FOM), which hold the commercial rights to F1 and through which hundreds of millions of dollars flow each year.
The nub of the banks' case is that the previous owner of their shares in SLEC did have board control. Yet they do not, and this puts them in a strange position—in effect they are minority shareholders. This makes their shares unsaleable at any reasonable price. This matters to more than just the banks: control of the Formula One companies' boards is essential at a time when the future of F1 is up in the air—contracts that govern it run only until the end of 2007.
So who does control the Formula One empire? Bernie Ecclestone, a British entrepreneur, the chief executive of FOA and FOM, and the dominant figure on F1's commercial side since the mid-1970s, used to own FOM. But in 1996, as the first step in a complex tax-avoidance scheme, Mr Ecclestone transferred ownership to Petara, an offshore company controlled by Slavica Ecclestone, his wife.
Complicated shuffles in the British Virgin Islands and Jersey followed. By 1998, Bambino Trust, whose beneficiaries are members of Mr Ecclestone's family, owned the SLEC group through Bambino Holdings (Bambino). Bambino now owns 25% of SLEC, having raised $3.4 billion from a bond issue and by selling 75% of its stake in 1999-2001.
A “special adviser” to Bambino Trust and Bambino is Stephen Mullens, a lawyer who was a partner until 1999 in Marriott Harrison, a British law firm that has acted for FOA and FOM. He is an appointee of both Mrs Ecclestone and Bambino: Mrs Ecclestone appointed him to the board of Petara in 1995; and Bambino to FOH's in 1998 and to SLEC's in 1999.
In their case, the banks claim that Bambino has improperly and illegitimately wrested control of FOH (and hence FOA and FOM) through opportunistic and questionable legal manoeuvres, at the centre of which stood Mr Mullens. (He is not a defendant in the banks' action.)
Two of Bambino's directors are Luc Argand and his wife, Emmanučle Argand-Rey, both Swiss lawyers. Mr Argand is also a trustee of Bambino Trust. Bambino and Mr and Mrs Argand, who are all defendants in the case brought by the banks, deny the bank's claims. To gain control of FOH, the banks are contesting the validity of Bambino's appointment in October 2002 of the Argands as directors of FOH, which gave Bambino control. If successful, the banks will have to launch further legal actions to win control of FOA and FOM. Only then could they wield powers commensurate with their holding in SLEC.
A shareholders' agreement (the “SLEC agreement”), signed in May 2000, sets out the composition of the boards of the F1 companies. It was drawn up when EM.TV &Merchandising, a high-flying German media company, bought Speed Investments, which owned 50% of SLEC at the time, from two private equity firms. EM.TV also acquired an option to buy a further 25% of SLEC from Bambino for $987.5m.
The SLEC agreement included various rights for Speed and Bambino to appoint directors to SLEC, FOH, FOA and FOM. These rights were written into the relevant articles of association, the legal document that governs the way a company is run.
With more than 25% of SLEC, Speed was entitled to appoint four “A” directors to each of SLEC and FOH; Bambino was similarly entitled to appoint four “B” directors. With not less than 5% but no more than 25% of SLEC, Bambino would be entitled to appoint two B directors to each company. And each of SLEC and FOH was to have a maximum of eight directors. So with 75% of SLEC, Speed could appoint two “ordinary” directors to each company as well as its four A directors.
One of Speed's four A directors on FOH's board had to be from WestLB, a German bank, which in 1999 had rescued a $1.4 billion bond issue for F1, the proceeds of which went to Bambino.
By the end of 2000, EM.TV was engulfed in accounting problems; its shares nose-dived. Kirch, at the time a giant German media group with pay-TV interests, spotted a backdoor way of acquiring control of SLEC. The SLEC agreement required EM.TV to get Bambino's permission if a broadcaster acquired control of Speed. To circumvent this provision, a complicated deal was structured. Its essence was that Kirch funded Speed's purchase of another 25% of SLEC, and Kirch acquired control of Speed from EM.TV via an intermediary.
Twists and turns
The total cost to Kirch was almost $1.6 billion, which it borrowed from the banks; extraordinarily, Bayerische Landesbank, which is half-owned by the state of Bavaria, lent the $987.5m for the option payment. The banks took security on Speed's 75% interest in SLEC.
After the option was exercised in March 2001, Speed (ie, Kirch and EM.TV), as envisaged in the SLEC agreement, controlled SLEC's board, and SLEC the board of FOH. The mechanism by which FOH controlled FOA's board was to become significant.
By now, Speed was entitled under FOA's articles to appoint one A director to FOA, and Bambino one B director. But, under the articles, FOA's shareholder (ie, FOH, which Speed controlled) was able to set the firm's maximum number of directors. A resolution by FOA in June 2001 limited the number of its directors to three. So FOH could appoint one ordinary director to FOA's board, which Speed did. Thus, from June 2001, FOA's board comprised two Speed representatives and Mr Ecclestone, who was a Bambino appointee but was not formally designated a B director.
A similar mechanism existed for control of FOM. However, apparently out of deference to the wishes of Mr Ecclestone, FOA did not take control of the board of FOM's immediate holding company, Petara, which remained in the hands of Mr Mullens and Mrs Ecclestone. And whoever controlled Petara had the ability to control FOM. Nevertheless, from June 2001, FOM'S board had the same composition as FOA's.
Before long, the Kirch group collapsed under the weight of its massive debts; the part that controlled Speed filed for bankruptcy in June 2002. The banks then enforced their security over Kirch's shareholding in Speed so that they would become entitled to exercise Speed's rights. But clearance did not come from the European Commission until late September. During this interregnum, Bambino began its grab for control of FOH, FOA and FOM. Bambino denies this: its defence is that its actions were in F1's long-term interests.
In mid-September 2002, Bambino appointed Mr Mullens as its B director of FOA, taking the number of FOA's directors to four, and simultaneously removed Speed's ordinary director on the grounds that the maximum number of three had been exceeded. As it had appointed two of the three directors, Bambino had control.
One of the four A directors on FOH's board thought that Bambino was hijacking FOA's board and resigned in protest. A week later, Bambino appointed Mr and Mrs Argand as B directors of FOH. As Mr Ecclestone and Mr Mullens were already on FOH's board, Bambino now had four directors and de facto control. But with its 25% shareholding, Bambino was entitled to appoint only two B directors to FOH, and had—Mr Ecclestone and Mr Mullens.
Another A director resigned from FOH in mid-October, which meant that there were now only two A directors on the board. FOH rejected the banks' attempts to fill the vacancies for A directors before a FOH board meeting in late October.
At this meeting, the FOH board voted, by a majority of five, which included WestLB's appointee, to one, to amend FOA's articles. The change, which Mr Mullens suggested, was small but extremely significant. Instead of being determined by a shareholder resolution (and hence within FOH's control), FOA's maximum number of directors was simply to be three. As the change to FOA's articles cannot be reversed without Bambino's consent (or alternatively a court challenge), the effect was to entrench Bambino's control of FOA, even if the banks were to regain control of FOH.
Bambino used similar manoeuvres in FOM, though the process was simpler because Mr Mullens and Mrs Ecclestone already controlled Petara's board. In July 2002, Bambino appointed Mr Mullens as its B director to FOM's board; in mid-September, Petara removed Speed's ordinary representative on FOM's board; and a month later Petara made the same small but significant change to FOM's articles. (Table 2 shows the current directors of each company.)
http://www.economist.com/images/20040828/CSF389.gif
article continues (http://www.economist.com/displaystory.cfm?story_id=3127517)