Ecclestone is in deep thought these days. He has
problems with F1, and the rumors about a potential buyout
of CART is the hot topic of discussion in racing circles.
The media is in a
feeding frenzy over the rumors that Bernie Ecclestone might
buy into CART. Yesterday in Australia, CART President
Chris Pook flatly denied the rumors. While what Pook
stated may be true, I have a feeling there's more to this
story than meets the eye. Let's take a closer look.
In this AP
article, Chris Pook speaking from pit
lane at the Gold Coast event, told The Associated Press,
"I'm not going to deny to anybody that I've talked with Bernie
Ecclestone," Pook, . "He's a friend. He's also the most
intelligent man in motor racing in the world. And there is no
doubt that I am rebuilding this series. So it's logical that I
would go to someone like that and say `Hey, am I going in the
right direction?' That's what's going on." Pook said that he
sees CART as a proven training ground for drivers who want to
get to Formula One. Jacques Villeneuve and Juan Montoya,
previous CART champions, moved on to Formula One, and
Cristiano da Matta, who clinched the 2002 series three weeks
ago, is rumored to be going to Formula One next year.
"It no secret that I have said on the record that I would like
to take young drivers out of this series and present them to
Formula One to see if they can make their way up the ladder,"
said Pook. "That's got to be the epitome of their career." But
there was too much speculation and not enough truth in the
merger rumors, he said. "All these things are out there, and
somehow or another, someone has tried to connect all the dots,
and said `Ecclestone is going to take over CART'. "Maybe he
is, I don't know" added Pook, laughing. "But he hasn't told me
that. And he hasn't told anybody else that." Pook said the
merger talks have "quite frankly, been very flattering from
our point of view, but also very embarrassing."
"Our position is quite clear. We're in the open-wheel racing
business. He (Ecclestone) is in the open-wheel racing
business. He's got some challenges, we've got some challenges.
Our solution is to talk." Pook said he and Ecclestone were
talking about a lot of things, "but there are no formal
discussions going on about our relationship with Formula One.
Absolutely not. "This is two businessmen who have known each
other for a long time.
When you read
those quotes you come away convinced that all the rumors were
just smoke and mirrors to hide the real situation, that CART
is a series in deep trouble on several fronts. However,
I don't think it's smoke and mirrors. I think Pook knows
CART has some major hurdles and he has indeed engaged Bernie
to advise him.
But if it's just
advice, then why did RPM2Night report that CART sent all its
financial records and contracts to Ecclestone for review?
The Ford Racing
website has reported this as well, saying the info
came from, quote, "a most reliable source." The Toronto
Sun also was told something based on their reports this past
week that Bernie might buy CART. If Bernie is
giving Pook advice, then it's very serious advice because if
CART is making those sort of records available to him, then
Bernie is advising Pook on every facet of the business.
Bernie may not
have told Pook that he was going to buy CART....yet.
Therefore, Pook is being truthful when he says "if Bernie is
buying CART, he hasn't told me yet." However, a company
doesn't usually just turn over those records to anyone unless
they are interested in potentially buying the company.
In legal circles
it appears they are in a period called due diligence,
at least from my perspective. Under due diligence, the
interested buyer signs a Confidentiality Agreement which
bounds them to complete secrecy as to what they see in a
companies financial records and existing contracts. If
you owned a company, you would not want your records being
made public, and if the info did leak out you have the right
to sue the party who signed the confidentiality agreement for
damages.
In turn, during
the due diligence period, the buyer does not want their
competitors to know that they are interested in buying XYZ
company because then other companies may jump in and it
becomes a feeding frenzy, driving up the price to buy.
Due diligence is normally a quiet period whereby everyone does
their investigations/research.
Due diligence is
nothing more than an investor being "diligent" when checking
out the substance of the claims made by a company with respect
to the market, the product or service concept, the
competition, the management team and so on. The term "due"
means that it's expected and someone has to perform this task.
So the concept is really all about the diligence that is due
the investigation into a company's plan for doing business.
I have heard,
though have been unable to confirm, that Bernie himself may
not buy CART, but he may orchestrate a deal whereby other
wealthy investors buy into CART and he remains in the
background. Is this information true, or just more
unsubstantiated rumors? If true, then when Pook denies
Bernie is buying into CART, he's again being honest; Bernie
himself may not be.
Due diligence can
also go several steps further. Investors will often pick up
the phone and contact people or companies named in your
business plan, contracts, or other correspondence. I
have recently been told, that out of the blue, Ecclestone has
been calling a number of people in the United States
associated with CART in one way or another. What I am
told is that his calls have been mostly along the lines of,
how are you, and how have you been? Perhaps it's an
attempt for Bernie to renew old acquaintances and to see if
he's greeted warmly. These casual conversations may also
yield information about CART that may be valuable to Bernie,
information the person may reveal if he/she thinks the call is
of a casual nature, i.e. when their guard is down.
Due diligence also applies to statements about patents,
trademarks, exclusive contracts and deals currently in
process. Investors would like to mitigate as many risks as
possible related to the purchase. Due diligence simply allows
them to check and double-check the pertinent pieces of the
deal before deciding whether to provide capital, hence why the
reports say Bernie also requested CART's existing contracts.
In the end Bernie
may walk away and say, thanks, but no thanks. In that case,
Pook isn't required to say anymore. Perhaps that is what
has happened already. Perhaps Bernie said, thanks, but
no thanks, and would explain why Pook flatly denies there is
any truth to Bernie buying the company.
Another possible scenario
is this - with Bernie dropping races in Europe, he is going to
have to try to appease track owners and sponsors of the soon
to be dropped events. He could fill the canceled Formula One
dates with CART, given the leverage he has in those markets
with the race tracks and sponsors. The reason Bernie maybe
looking at the CART books, is to validate that CART is
solvent, has the ability to be in business for the next X
amount of years, which makes CART highly marketable to track
owners and sponsors in Europe; or, where ever else Bernie has
influence and can get a slice of the money without any large
amount of capital laid out on his part.
However, if he
decides he likes what he sees, then perhaps he, or his
investment group, may make an offer to CART to buy. At
that time, Pook could reveal that there
is an offer on the table to buy all, or buy a portion of, the
company, and who the buyer is, in this case Ecclestone or some
other group. However, by law he or the board still do
not have to say anything. If they choose to inform stockholders,
then some sort of announcement would be put out in the
form of a press release, or a press conference.
However, that
still does not mean he would be buying CART, or even a
controlling interest of 51% of it. At that point, an
offer would be on the table from Bernie to buy shares of CART
stock at some price, say $8 per share or $10 per share (versus
a current price of $4.90 per share). There would be a
vote by the board of directors to accept the offer or decline.
If they vote in favor of the offer,
then the deal can move forward. If rejected, the buyer
can the choose to walk away, or make a higher per share
counteroffer.
In conclusion,
while Chris Pook may have attempted to put an end to the
rumors about Bernie buying CART in what I think may be a quiet
period of due diligence, I am not ready to close the book just
yet. Whether a deal materializes or not, you're guess is
as good as mine.
However, where
there's smoke, there's fire, and with all the negative news
surrounding CART (lost teams, lost drivers, lost sponsors and
lost manufacturers), Pook and his staff don't appear worried
at all. Outwardly at least, they appear confident, and
that may be the most telling sign of all.
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