September 17, 2019

DealBook: Thai Billionaire Offers $6.6 Billion for Discount Retailer

A group controlled by Dhanin Chearavanont last year completed the purchase of a 15.6 percent stake in the Ping An Insurance Group of China from HSBC Holdings.Chaiwat Subprasom/ReutersA group controlled by Dhanin Chearavanont last year completed the purchase of a 15.6 percent stake in the Ping An Insurance Group of China from HSBC Holdings.

HONG KONG – CP All, the Thai operator of 7-Eleven convenience stores owned by the billionaire Dhanin Chearavanont, said on Tuesday that it would pay more than $6 billion to acquire the discount retailer Siam Makro in the biggest takeover announced in Asia this year.

It is the second blockbuster acquisition in recent months for a company controlled by Mr. Dhanin, whose Charoen Pokphand Group in February completed the $9.4 billion purchase of a 15.6 percent stake in the Ping An Insurance Group of China from HSBC Holdings. That deal was announced in December.

The deal comes after a major buyout by another Thai billionaire, Charoen Sirivadhanabhakdi, a beverage magnate whose companies completed an $11.2 billion buyout in January of the Singaporean conglomerate Fraser Neave, the end of a long takeover battle that began in July 2012.

CP All, said it would offer 188.34 billion baht ($6.6 billion) for all the outstanding shares of Siam Makro, which operates 57 membership-club retail outlets around Thailand, as well as a chain of five small frozen food shops, Siam Frozen.

The deal is also the biggest globally within the retail sector. It brings the total value of mergers and acquisitions in the global retail sector this year to $25.6 billion, up 87 percent from the period a year earlier and the strongest year-to-date level since 2007, according to data from Thomson Reuters.

In a filing on Tuesday with the Stock Exchange of Thailand, CP All said it had reached an agreement to pay 787 baht a share for the 64.4 percent of Siam Makro owned by SHV Holdings, a private, family owned Dutch firm with businesses ranging from oil and natural gas production to private equity investing.

The offer is 15.4 percent above Siam Makro’s closing share price of 682 baht on Friday, when the stock was suspended from trading in Bangkok.

After the deal with SHV Holdings, CP All plans to start a general offer to public shareholders at the same price for the remaining 35.6 percent stake.

This post has been revised to reflect the following correction:

Correction: April 23, 2013

An earlier version of this article gave the incorrect figure in baht for the value of CP All’s offer. It is 188.34 billion baht, not 343.24 billion baht. An earlier version also incorrectly rendered the name of the Thai billionaire on second reference. As per Thai custom, it is Mr. Dhanin, not Mr. Chearavanont.

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Deal Professor: For CVC Capital, Formula One’s Perils Extend Beyond the Racecourse

Harry Campbell

Fasten your seat belts. The deal-making for the $10 billion Formula One auto racing empire has already taken more than a few sharp turns as a result of accusations of bribery, collusion and corruption.

And the race is not over. A private equity firm is now challenging Formula One’s 2005 sale in a lawsuit filed in New York.

Formula One has long been identified with Bernie Ecclestone, an 82-year-old Englishman referred to in the British tabloids as “F-1 Supremo.” He built the business, starting as a trader of motorcycle parts. Yet the controlling stake in the Formula One companies had been held by the German media magnate Leo Kirch.

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In 2002, Mr. Kirch defaulted on loans secured by the stake, and three banks — JPMorgan Chase, Lehman Brothers and BayernLB, a bank controlled by the German state of Bavaria — became the owners of Formula One.

Not equipped to run a racing empire, the banks probably just wished to sell the stake at a face-saving price. But as long as they owned it, they needed Mr. Ecclestone to operate the business. And Mr. Ecclestone just wanted to be in control.

A standoff existed until 2005, when CVC Capital Partners, a British private equity firm, announced that it had acquired the banks’ stakes for $1.25 billion. For good measure, CVC also paid hundreds of millions of dollars to acquire part of the Formula One interest held by a Liechtenstein trust named Bambino, which had been set up to benefit the Ecclestone family.

The Formula One investment has proved spectacularly successful. Since its purchase, CVC has paid itself $2 billion in dividends, sold part of Formula One in May for $2.5 billion and, according to the data provider Standard Poor’s Capital IQ, still owns a 42.4 percent stake. This year, Formula One filed for an initial public offering on the Singapore stock exchange, with an intended valuation of as much as $10 billion. Mr. Ecclestone’s net worth is estimated at $2.4 billion.

But this enormously rewarding investment may now be in jeopardy.

In 2011, the German media reported accusations that the deputy chief of BayernLB, Gerhard Gribkowsky, had taken a $44 million bribe from Mr. Ecclestone in connection with the sale of Formula One. Mr. Gribkowsky was responsible for the disposition of the bank’s 47.4 percent interest in Formula One.

Mr. Gribkowsky was charged with bribery, embezzlement and tax evasion. At the banker’s trial in Munich last year, Mr. Ecclestone testified that Mr. Gribkowsky was “shaking him down,” and that the payment was made to prevent Mr. Gribkowsky from claiming to the British tax authorities that Mr. Ecclestone controlled the Bambino trust, something that would invalidate the ability of the trust to hold the Formula One stake tax-free.

Mr. Ecclestone denied that he controlled the trust, but said he and the trust made the payment to ensure the banker’s silence. Mr. Gribkowsky was convicted on charges of tax evasion, bribery and embezzlement this year and sentenced to eight and a half years in prison. But that was not the end of the legal mess.

Last month, Bluewaters Communications Holdings, which in 2005 was a competing bidder for Formula One, sued Mr. Ecclestone, CVC and BayernLB in New York State Supreme Court.

Bluewaters claims that Mr. Ecclestone’s payment was made in order to have Mr. Gribkowsky steer the sale of Formula One to CVC, Mr. Ecclestone’s favored buyer. Bluewaters was backed in its bid by $1 billion in financing from Apollo Global Management and King Street Capital Management.

Bluewaters contends that it bid $1 billion for the stakes held by three banks, less than what CVC paid. Yet the firm says it also offered to pay “10 percent more” than any other bona fide offer. In other words, Bluewaters agreed to outbid the highest bidder. It was a crazy, aggressive strategy that few bidders would even dare to undertake, and it might be that Mr. Gribkowsky and the other banks simply did not take the bid seriously.

But in its complaint, Bluewaters said its offer had been ignored because Mr. Ecclestone did not trust Apollo, which he viewed as being too hard to work for, and because of his preference for CVC’s bid. Moreover, Bluewaters claimed BayernLB had paid Mr. Ecclestone $41.4 million from the funds it received from CVC in order to then pay Mr. Gribkowsky to steer the bid to CVC.

A representative for CVC did not respond to requests for comment. But Mr. Ecclestone has told Pitpass, a racing news Web site, that the money was paid to him for an indemnity from him for any mistakes in Formula One’s financial records, not as a payment for Mr. Gribkowsky.

Bluewaters is claiming at least $650 million in damages, the lost profit it would have earned had it bought Formula One. And there are others who appear to believe the payment to Mr. Gribkowsky was for more than silence.

At Mr. Gribkowsky’s sentencing, the judge stated that “in this process we assume the driving force was Mr. Ecclestone,” a sentiment also expressed during trial by the prosecutor, who asserted that Mr. Ecclestone was an “accomplice in an act of bribery.”

On the heels of Mr. Gribkowsky’s conviction, BayernLB has demanded that Mr. Ecclestone pay it hundreds of millions of dollars to reimburse it for its losses related to the payment.

German authorities and British tax officials are reportedly investigating, though Mr. Ecclestone has not been accused of any wrongdoing in Germany or Britain.

In response to a request to Mr. Ecclestone for comment, his office said he was traveling and could not be reached before deadline.

Mr. Ecclestone, an outsize personality, built the Formula One franchise over decades. It is hard to envision any situation in which he would willingly give up control of his baby.

Still, the accusations show that something went terribly awry in the sale of Formula One.

As the investigations gather steam, it is unclear what will happen to the company. In large measure, Formula One is Mr. Ecclestone. It is a league dependent on race organizers, many of whom are Mr. Ecclestone’s friends and peers. If he is not involved to orchestrate the league, there is no clear successor to manage these relationships.

Formula One acknowledged in its Singapore I.P.O. prospectus that was highly dependent on Mr. Ecclestone. Market turmoil in June led Formula One to abandon its initial offering. And Mr. Ecclestone is still intimately involved: the Bambino trust holds 8.5 percent of Formula One, and he owns 5.3 percent.

Formula One, with more than 30 subsidiaries and intricate relationships with race sponsors, has been criticized for its complex ownership structure. Now it is the ownership itself that is coming under attack.

This is a troubled time for CVC and Formula One. They risk losing Mr. Ecclestone as they become embroiled in multiple investigations. And it will certainly be much harder to take the company public or sell it.

Ultimately, though, this is a lesson in deal-making and how the machinations surrounding any sale can lead those involved to extreme measures, even possibly illegal ones. And when the deal-making is in the billions and all dependent on one man, there is even more room for foolhardy errors, a pile-up that can only come back to haunt those involved, as CVC may be finding out.

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