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Will Frankfurt's glitzy F1 IPO stall?
February 24, 2011 / 2:43 PM / in 7 years

Will Frankfurt's glitzy F1 IPO stall?

FRANKFURT/LONDON (Reuters) - Formula One team Williams is on the final straight toward its market debut next week, the first of its kind to float, and while its novelty will attract some, others are unconvinced by the investment case.

<p>Williams Formula One driver Rubens Barrichello of Brazil drives the Cosworth FW33 car during the first test session of the year at the Ricardo Tormo racetrack in Cheste, near Valencia, February 1, 2011. REUTERS/Heino Kalis</p>

“The IPO is very interesting, and I am sure that it will be watched closely by Formula One fans, but also by investors and other teams, like Fiat’s FIA.MI Ferrari, which is allegedly also considering an IPO of its team,” Markus Huber, a Frankfurt-based trader at the ETX Capital brokerage told Reuters.

“If the debut is successful, this could easily lead to other IPOs in the sector,” he added.

The British-based former world champion operator, which plans to float up to 2.74 million existing shares on March 2, will offer the stock at 25 to 27 euros per share.

It had originally looked to fetch 24 to 29 euros per share, targeting proceeds of up to 78 million euros.

Frank Williams, who founded the team with Patrick Head in 1977, will remain the majority shareholder following the initial public offering (IPO), while Head plans to sell the bulk of his stake.

Around 80 percent of orders so far have come from the UK, Germany and Switzerland, reflecting the focus of the roadshow last week, a source close to the offering said.

Analysts and bankers have said they believe the appeal and success of the company’s market debut may be boosted by its uniqueness. It will be the first Formula One racing team to list on an exchange.

“Uniqueness is always exciting,” a banker close to the deal said.

Investors will also take some reassurance from rules designed to ensure the sport manages its expenditure.

“F1 teams are ... forced to adhere to a resource restriction agreement (RRA). Through this, costs are being saved, ensuring that the industry and the sport is money-making and that any investment is sustainable, unlike in soccer, for example,” he added.

Last month, by contrast, European football’s governing body UEFA said the continent’s first division clubs made a loss of 1.2 billion euros ($1.65 billion) between them in 2009.

A Financial Fair Play Plan (FFP) was unveiled by UEFA in 2010 in an attempt to stop reckless spending and prevent super-rich benefactors distorting the transfer market, but debt is still a massive issue.

“That’s where Formula One certainly has a stronger investment case,” Huber said.


Some investors, however, say most, if not all, sports teams are just too risky an investment opportunity, which could put a damper on the listing.

“The listing will go ahead. I don’t think they will pull it at the last minute. I doubt, however, that this is a wise thing for the company to do at the moment,” said a Frankfurt-based equity analyst.

“The IPO market is picking up in Germany, Europe and even globally, but I struggle to understand why investors would invest in motor sports,” he added.

“Yes, F1 is sexy, but the recent cancellation of the Bahrain event make it a risky moment for listing,” said a Munich-based analyst.

Williams has also over the last year lost heavyweight sponsors RBS (RBS.L), Philips (PHG.AS) and Allianz (ALVG.DE), among others.

However, the company, which has been profitable for the past three years and has a fully contracted budget for 2011, also has plans to tap into the lucrative green technology market to create additional revenues.

The group also plans to pay a dividend of 25 to 35 percent of free cash flow as one way of winning over investors.

Toto Wolff, a non-executive director and shareholder of Williams Grand Prix Holdings, said: “We want to pay a dividend -- in the past we have generated very high cash flows, and these will flow back to the investors.”

“The initial challenge we’ve got is the image of F1,” Williams chairman Adam Parr told Reuters.

“Many people love F1, but not many people have considered it as an investment, and I think that (we must) get across the fact that we actually make money and that we’ve got growth opportunities,” he said.

F1 team Ferrari is also backing its rival.

“At a time when the world economy is still going through a very delicate phase, especially in Europe, it is positive to see new methods being used to try and assure the future of the independent teams,” Ferrari Team Principal Stefano Domenicali said.

(Editing by Will Waterman)

$1=.7270 Euro

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