What did Roger Penske really mean?


 by Mark Cipolloni
July 1, 2003

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This Kansas City Star article raises the obvious point that two open wheel series in the USA causes fan confusion.  "It would improve chances of open wheel racing catching NASCAR if there wasn't that confusion," stated Tony George. To reduce the number of open wheel series from two to one, one of two things must happen. The two must unite, or one must die. Roger Penske is hoping for a merger. "I think there will be some rational combination of the two that will take place," stated Penske, but Penske said George thinks that may no longer be possible, which leads to the latter option.....that CART dies and goes away, a popular belief held by many.

When Roger Penske (pictured right) speaks, people listen.  One person listening quite intently today was myself. Does Roger Penske truly believe that the two series can be merged, or did he really mean that CART will die and the IRL will grab the remains and cast aside the waste?

Face it, if Roger Penske and/or Tony George really wanted to get rid of CART, they could make the highest bid for it, take control and kill it off, almost overnight.  The Coup de Grace so-to-speak.  Let's examine how this could play out.

When CART announced it was up for sale, they hired Bear Stearns to administer the bidding process. Once bids come in, the CART Board must review them.  Once they accept a bid, it becomes public knowledge.  A press release will be issued.

Let's say a bid comes in from a Gerald Forsythe team for $3.00 per share.  Another entity such as Penske or George could then bid $5 per share.  The CART board has an unambiguous duty to take the highest bid, even if they believe that Penske or George would buy CART just to kill it off. 

Precedence for their actions is called the Revlon Duty (as in Revlon Cosmetics), a case that involved this very issue. If the board went down that path, they would take on massive personal liabilities.  I doubt they have the stomach for that.  Once the board recommends the shareholders accept the highest bid, it's then up to the shareholders to decide whether they want to accept the highest bid, or another bid.

Speaking of shareholders, Jon Vannini is CART's second largest shareholder behind Gerald Forsythe.  When contacted in his California office today, he had some interesting thoughts on the topic of CART's future and what Roger Penske may have meant.  Asked if he is part of a deal to take CART private, Vannini responded "That would be news to me. I rarely hear from Chris Pook (pictured right) unless he needs a favor."  I was stunned to hear him say that because if it wasn't for Vannini, Joe Heitzler might still be President of CART and Chris Pook would still be working for Dover Downs.  It was Vannini who lobbied hard and spent endless hours behind the scenes ensuring Pook was elected President of CART.

Vannini went on to say, "I'm sure Chris has a plan. He must be reasonably confident he has the funding because he hasn't asked me to participate.  If you can believe the rumors, the only current shareholder who is part of any would-be deal to take CART private is Mr. Forsythe....but I really don't know."

I asked if he had been contacted by either Tony George (pictured right) and/or Roger Penske regarding taking over CART, in what would amount to an unfriendly takeover bid.  Vannini said, "No, why would they contact me? Based on their public comments, they appear to be quite comfortable operating on the assumption that CART is just going to go away and that unification is the de facto result of CART's imminent extinction. That is not my view, but both of those gentlemen seem fully invested in that perception."

When I pointed out Roger's comments in the Kansas City Star article referenced above, Vannini responded, "I have not seen the article. Moreover, I don't know the context in which that statement was made...if it was indeed made. There are many interpretations to be made of that statement. Nothing in the body of his actions or comments leads me to conclude that Mr. Penske has modified his view of things. But who knows?  And besides, is it Mr. Penske's decision?  I note with interest that lack of a quote from Mr. George on the matter."

Asked if he thought unification would be good either from a sporting perspective or commercially, Vannini said, "It depends. I think if you took each of the series' respective strengths and morphed them into some sort of Super Series that would make sense to me. That seems pretty obvious. I think in private, both sides would admit to that. Only a moron wouldn't."

"I don't, however, subscribe to the currently fashionable notion or thesis that if CART were to cease to exist tomorrow that the IRL would miraculously start some new found upward trajectory. I think recent events clearly indicate that isn't the case. Many folks would quarrel with that statement but I believe it is, more or less, incontrovertible.  The IRL has some of CART's biggest names, some of its biggest teams and some of its biggest sponsors, yet their TV ratings and attendance have stayed neutral, and in some cases dropped."

Asked to expound, Vannini said, "You don't have to be a genius to see that the U.S. is in a very difficult economic environment. You have a myriad of outlets vying for limited advertising dollars. If two of those outlets were to merge, logic would dictate that it would be easier to succeed. But I don't think a merger is a pre-condition for success, either CART's or the IRL's. They are becoming very different products. Not surprisingly, I am less enamored with the IRL product but there are certainly some strengths there, commercially speaking, and there are some of the sporting aspects that I admire and enjoy. I just fundamentally don't believe that there is a market for an all-oval or nearly all-oval based open wheel series. But some very bright folks are betting a lot of money that there is, so who am I to say?"

"By contrast, I do believe that there is a big market for what CART has to offer and since I don't see unification as anything other than someone's occasional fantasy, I advocate CART pursuing that market aggressively. But this whole idea of a merger is something that seems to percolate to the fore in the media every summer. I just don't see it happening. If Messrs. Penske and George wanted to unify open wheel racing in America quickly, they could simply buy CART. The fact that they haven't indicates to me they don't think they have to."

"There has been some speculation that certain people have an advantage in any deal to acquire the company. I disagree. The simple truth of commerce is that the person(s) willing to pay the highest price for an asset almost always ends up owning it. In CART's case, the shareholders will decide. In my judgment, they will decide in favor of whoever offers the most money...regardless of who that person or entity is. Barring some difficult to imagine circumstance, I will do the same."

My sources say Vannini could get a minimum of 25% to vote his way.  Mind you, if Roger or Tony bids higher than Pook et al, almost ALL investors except Forsythe would vote that way....including any mutual fund.  After Vannini, the biggest shareholders are institutions.  Institutions buy stock as part of their Mutual Fund portfolios.  Mutual Funds have a DUTY to vote that way (mutual funds simply can't own a private company)...given that, and given that Vannini, the second largest shareholder said he would vote for the highest bid,  the person with the deepest pockets is at a distinct advantage.

Unless Chris Pook et al have a deal the shareholders can't refuse, the ball, and clearly CART's future, may very well be in the hands of Messrs. Roger Penske and/or Tony George. Just how bad do they want CART, or want CART to make it go away? 

There have been rumors of other bidders, most notably Bernie Ecclestone, without question the most powerful man in motorsports.  Other rumors suggest other private companies or individuals may be putting bids together, including one bid that includes a big venture capitalist.

So, will it be lights out for CART, or will the future hold a bright new beginning with new owners who believe in what CART is all about, i.e. the premier road racing series in North America.  Is there someone, some entity, who cares enough, or who sees a business opportunity in CART, to want to ensure it endures? 

The next several weeks should be interesting, but I can assure you one side is not going to be happy with the outcome.  If CART survives and then thrives, Tony George's IRL series will continue to flounder along, and if there is a successful unfriendly takeover bid of CART, an entire racing series could cease to exist tomorrow, leaving a lot of devoted road racing fans reeling; fans who have rejected the IRL in spite of having all the big CART names, and will simply switch to being NASCAR or F1 fans instead.  This war has left a lot of hard and bitter feelings.

In war there are no winners, just survivors.

The author can be contacted at markc@autoracing1.com

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