Ferrari has traded its entire stake in Formula One for an interest in the racing franchise’s new owner, Liberty Media. The Italian luxury car company revealed in a regulatory filing that it sold its 0.25% stake in the top-ranked single-seat auto race series in exchange for $3.1m of stock in Liberty and a cash payout of $11.4m.
Ferrari’s annual report states that “as a consequence of the change of control, Ferrari exercised the options … and on 22 February 2017 received approximately $11.4 million in cash (including $2.7 million of previously undistributed dividends), 145 thousand Liberty Media Corporation shares and $911 thousand of Liberty Media exchangeable notes”.
Liberty, run by billionaire media magnate John Malone, bought Formula One’s parent company, Delta Topco, for $8bn in January. Chase Carey, formerly chief operations officer and deputy chairman of Rupert Murdoch’s News Corp, became chief executive of Formula One in January.
The automaker is Formula One’s most famous name and is the first of its 10 teams to acquire stock in Liberty.
This isn’t the first time Liberty has tried to tempt F1’s teams into becoming stakeholders in an effort to change the old-boys management structure of the storied race franchise. In the wake of the takeover, Liberty offered F1’s 10 teams the chance to buy $1.1bn of its shares, but none of the teams accepted the offer. Since then, Liberty has scaled back and has given the teams a July deadline to buy $400m of its stock. Ferrari is the first company to take Liberty up on its offer.
Liberty’s chief executive, Greg Maffei, said that the shares are being offered to the teams “as part of an induced change in how we operate together”. Under the current ownership scheme, the top performers get the lion’s share of F1’s prize money, have veto rights over certain new races and have put the brakes on plans to curb spending. Liberty wants to reverse this.
Maffei says that if the teams don’t buy the shares they will be repurchased by Liberty but he is “far more interested in getting the right deal with the teams and setting the structure of the races. Much more cost-containment and much more fairness in prize money.”
Liberty’s shares were priced at $21.26 when it offered them to Delta Topco’s shareholders, giving Ferrari $3.1m worth of equity. Combined with the $8.7m it received in net cash, this put an $11.8m value on Ferrari’s options.
Liberty’s F1 common stock is now listed on the Nasdaq under the ticker FWONK, and sits alongside Liberty’s other assets such as the Atlanta Braves baseball team, a 34% stake in the event promoter Live Nation and minority positions in the media giants Time Warner and Viacom.
The acquisition of Delta Topco was fuelled with cash and stock which gave the sellers, led by the private equity firm CVC, a significant stake in Liberty. Ferrari was a beneficiary, too: the Italian motor marque was granted options on Delta Topco stock when it signed a contract to commit to race in F1 from 2013 to the end of 2020.
According to Ferrari’s filings with the Securities & Exchange Commission, its options were independently valued on 31 December 2016 at $12.6m (€12m), a 6.6% increase on their value three months earlier. The 30 September valuation was carried out three weeks after Liberty announced its takeover and was 5% down on the previous assessment from six months earlier.
Ferrari put this fluctuation down to the change in ownership of F1 as its filings state that “movements in the Delta Topco option relate to the revaluation of the option, which was impacted in 2016 due to the agreement between Liberty Media Corporation (‘LMC’) and CVC Capital Partners for the sale of Delta Topco to LMC”.