Brawn: No choice in buyout

Ross Brawn
Ross Brawn have spoken about his recent acquisition of the Honda F1 team which is now called Brawn GP. Speculation has been flying across all mediums about the acquisition. Who is involved? Who is not? What will happen to the 700 employees? Where did Nick Fry go?

Brawn GP is in Spain this week for their first official test and a sporting bunch of journalists asked Ross some of the more germane questions.

“If I am frank, there were no choices.

“If the management group, because it is not just myself, had not taken this task on, there would be no team. Then all of the staff would have been made redundant. So, this gives us an opportunity.

“It wasn’t a difficult choice in that respect. Things can go wrong, but we are optimistic and if we can capitalize on the performance of the car, and the car looks good, then I think the team have got a future. If the car was poor then we only have ourselves to blame.”

“If we hadn’t stayed together as a group, myself, Nick Fry, Nigel Kerr, Caroline McGrory, John Marsden, if we hadn’t stayed together it would have been very difficult to achieve because there have been some very black days in trying to keep this team alive, I’m glad to say here we are and we are going to Melbourne, so it is fantastic.”

“Nick has been a key member of the team. He retains his position as CEO and will be a vital member for the future. Nick’s position hasn’t changed, despite the speculation, and he has been a vital part of putting this all together.”

“It is just, how do I describe it, a benign neutral colour scheme that leaves plenty of potential for the future, Now we have got over the first hurdle of securing the medium term of the team, we now have to look at the long term and try and find partners and sponsors to support the team.

“We are completely flexible on what we do in the future, but I hope we will have proper long term planning and proper structure for the team going forward.”

Most notably is the Nick Fry continuance which was very much in question. Nick had been the lead character in Honda F1’s attempt at securing a buyer and perhaps to the detriment of the team as it was often labeled as biased since Nick himself was interested in buying the team. I suspect, I have no supporting documents, that Nick took a back seat on the management buyout to prevent any British business law that could be leveraged against him as a biased party to the acquisition. Ross being the titular head of the acquisition accomplishes several goals and avoid other potentially damaging scenarios.

Also interesting was that there was no mention of Bernie Ecclestone as part of the buyout as an owner. Ross named several people involved with the acquisition but Bernie was not one of them. this leads to the question, is Bernie a part of the team or was he just the financial backing, along with Honda it is rumored, that funded the management to buy the assets? If this is the case, I assume Bernie offered them a blue-sky loan at a decent interest for his return on investment. Perhaps with convertible warrants that give Bernie ownership at a certain level. Honda’s financing, if rumors are true, would be an interesting gambit as well. They perhaps have look-back rights on Brawn GP and options of convertible warrants and possibly an avenue to come back to the sport should their desire change. This is pure speculation on my part but the cost of money in these situations is not only interest. Leverage, commerce…it all adds up to long and short term ROI with the minority partners usually being crammed down. Minority ownership has its pitfalls…all risk and limited upside.

I have said it before and will say it again, Bernie is very sharp cookie on these issues. His investment is multi-faceted. Certainly if he is being asked to take a haircut on rates or repayment leniency, he will require a pound of flesh on the backside of the note. He is also preserving his overall interst in fielding 20 cars so for the rumored $150 Million and all the potential hooks, look-back rights and convertible warrant rights he may have; he is in good shape. It also gives him access to the FOTA operation as an investor and board member of Brawn GP.

Something that would also be of interest is operating capital. Who is banking the project and what kind of Line of Credit do they have? Was the cash from Honda and Bernie enough to fund the 12 month operating period? Also, what will become of the redundancy factor with the employees? There is little Brawn GP can do about the need to cull the labor force and in business, that is part of the risk. A reduction of of 350 people at a low $45K salary would net close to 16 Million to the bottom line. Enough to pay for the Mercedes lumps and perhaps much of the R&D costs for continued development throughout the 2009 season. Also, sponsor money would be needed for driver salaries and that could supplement the interest expense they will experience on Honda and Bernie’s notes. Just speculation on my part but who knows?

Bottom line is, let us all wish Brawn GP the best of luck and while redundancy is never a good thing, I also thank Bernie, Honda and the management team for keeping the dream and spirit of the F1 racer alive. I would have been saddened at the thought of the BBF1 folding. Just as I was Super Aguri.

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