UK-based private equity group CVC has launched an internal investigation into the circumstances surrounding its acquisition of Formula One motor racing.
CVC took over the sport’s governing body for $1.7bn in 2006, along with impresario and ex-driver Bernie Ecclestone – “Mr Formula One” – who consolidated his existing stake.
According to the Financial Times, Gerhard Gribkowsky, former risk officer at German bank BayernLB, is currently in jail in Munich on suspicion of corruption, tax fraud and breach of trust relating to his role in the deal.
BayernLB inherited control of F1 after a $988m loan to defunct German media group Kirch, which then owned the company, went sour.
As Kirch was unwound in 2002, the bank became the major shareholder in the sport’s holding company, and installed Gribkowsky as chairman. Lehman Brothers and JPMorgan also ended up holding stakes thanks to bad loans.
Ecclestone, 80, was a minority shareholder at the time but his control over Formula One Administration (FOA), the sport’s main operating company, left him in de facto charge.
A long battle ensued, which ended with Ecclestone and CVC buying out the banks’ stakes.
The controversy hinges on the valuation of the company, which generated revenues of $1.1bn in 2009 and is now thought to be worth between $6bn and $7bn – though the scandal may make it more difficult for CVC to exit its investment.
Leo Kirch, founder of the obsolete media group and as such one-time owned of F1, has weighed into the debate, saying it was sold far below its fair value.
Prosecutors arrested Gribkowsky in January in connection with $50m in “consultancy fees” which appeared in his accounts in 2006 and 2007, which they believe were his fee for keeping the valuation low.
However, it is not clear how he would have been able to achieve this, given that the deal, one of BayernLB’s biggest deals for that year, would have had to be approved by the bank’s top executives and directors.
German newspaper Süddeutsche Zeitung reported an anonymous source within the banking industry as saying that the payments came from Mauritius and the British Virgin Islands – notorious offshore financial centres – and ultimately originated from Ecclestone.
CVC has now enlisted accountants Ernst and Young, who audit FOA, and law firm Freshfields, who advise CVC, to carry out an investigation. Bayern LB also says it will carry out an internal investigation.
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