Formula 1: The GOAT

(There was an election in my country, Tanzania, and a protest erupted so they shut down the internet)

“Once again, sir, do we really need them when we can do it ourselves and have even tighter control if we start everything from scratch?” Frank Smith, one of the executives against purchasing TheConqueror.com, asked again. He wanted to see if their due diligence had made the CEO change his mind and allow him to spearhead the globalization process from scratch.

“No company has fit our target more than this one in the history of our existence. It is as if it has been primed for us to come and purchase, considering what they are doing. They saw the same possibilities in motorsports that many old-fashioned people, entrenched in the sport, failed to realize. Their continuing rapid growth is evidence that they are on the right path. So why should we compete with them and fight for an audience when we can have all of them on our side from the start?” Michael John, a pro-purchase executive, argued back, drawing a clear line of the divide between the executives.

“Then we can just buy the Formula 1 section of their company. Why are we trying to buy all of it when the rest of the categories don’t relate to us?” Frank argued back. The prospect of them buying the whole company didn’t sit well with him. Inwardly, he wanted nothing about the purchase to go right, since it would mean his chances of gaining additional power by being given total control of the new media globalization venture would disappear.

“How much in time do you think an acceleration of our plan is worth?” Michael asked, already knowing why Frank was fighting so hard.

“I don’t know. It changes depending on what the accelerated outcome is,” Frank answered, giving a non-answer, as giving one would be no different than walking into a trap.

“Then let me ask you this: what is our digital modernization plan for Formula 1 once we finish the full acquisition?” Michael asked, changing tactics.

Upon hearing the question, Frank knew he had no choice but to answer it well. Failing to do so would be seen as incompetence in front of the CEO and other executives who were silently listening to their back-and-forth.

Begrudgingly, he said, “Transform F1 from an insular, TV-centered ’old boys’ club’ into a global entertainment powerhouse, heavily focused on digital fan engagement through social media, serial content, high-quality official video, and podcasts. Globalize the audience, especially in the US, with younger fans, women, and emerging markets, and monetize F1’s massive but underserved fan base through direct-to-consumer products, apps, F1 TV, streaming, and subscriptions.”

“Looks like you know your work. Then can you tell me exactly what part of our plan TheConqueror.com misses? They were already in the process of transforming the sport, having already bought the rights to post-session highlights, which were viewed by millions. They are a powerhouse when it comes to serial content that has been running for a few years, with everyone eyeing them. When it came to monetizing the massive audience, they were already ahead of us, having implemented a subscription model for early access to their video content.

They already have a high-quality app on the phones of the majority of their users, meaning they have already accomplished everything that we would have just started to set out to accomplish. They are open to acquisition and have provided everything regarding it to us without much trouble. And you want us to start fighting with them while they are at their strongest? Do you think they will remain silent during our expected five-year plan as you work hard, or do you think they will interfere and delay it for as long as possible until we once again have no choice but to buy them?

“It is literally the definition of a buy, plug, and play model. Why are you so intent on complicating it and delaying our plans when they can be achieved faster, due to your personal greed to move ahead of everyone to the detriment of the company’s goals?” Michael finally snapped, speaking directly to what everyone else had assumed but didn’t bother to mention, causing the other executives to raise their heads and look at the two of them.

“Their ownership structure is weird. Do you really believe that a young child should be able to own such a thing? And what about their connection with their lucrative betting business, which many who accessed it even argued was like they were rigging the races? Do you want us to buy a company that has had such accusations? Wouldn’t that be us legitimizing it?” Frank asked, trying to shift the topic away from what Michael had said.

But what he said regarding the connection was true. It wasn’t even something TheConqueror.com tried to hide when they handed over their internal books, showing the relation between the companies and the parent company owned by a trust that had Fatih Yıldırım as the beneficiary.

This had come as quite a surprise to them, seeing such a huge business under the ownership of a child who had no connection to motorsports other than racing himself. After additional checks, they found nothing that would be a problem. Even going through the betting records of their parent company, the betting odds were at about seventy percent, with many of their wild guesses failing. So, it was not a problem for them at all, or rather, it was something they welcomed.

“We are thinking of hosting a Las Vegas GP and are already in discussions with betting companies to open in-race betting officially supported by the sport. Now you are pointing at that company’s betting side, owned by their parent company? It should be good news since they think like us, and since there is nothing fraudulent about what they are doing, why should we be worried that a child is the legal owner? If it is illegal or hiding ownership, that is their problem with the authorities.”

The back-and-forth between the two executives continued for five minutes until the other executives and the CEO had finished going through the final due diligence documents. The CEO said, “So the enterprise evaluation they came up with is 750 million dollars?” silencing the two of them.

Enterprise Valuation, or EV for short, is the process of determining a company’s total value. Unlike market capitalization, which only represents the value of a company’s equity, EV provides a more comprehensive figure that includes both equity and all outstanding debt, minus any cash on hand. It is often considered the theoretical “takeover price” of a company in a merger or acquisition scenario.

The formula for calculating Enterprise Value is: EV = Market Capitalization + Total Debt + Preferred Stock + Minority Interest – Cash and Cash Equivalents

For TheConqueror.com, this came out to a total of $750 million.

If the enterprise value is the starting point, then the equity value is the finishing point, which is derived from subtracting debt from the EV and adding total cash. In an acquisition, the buyer is taking over the entire company, including its assets and liabilities. Because the buyer now owns the company and is responsible for its debt, the amount owed to lenders is deducted from the purchase price paid to the sellers. As a result, the company’s total acquisition amount came out to $450 million.

When everyone heard the amount, they couldn’t help but take a deep breath. It was a large sum, but what the acquisition lawyer said next removed all of their worries. “The owners of the company said they are open to taking $389 million of the $450 million total acquisition price in shares of the soon-to-be-renamed Formula 1 Group in return for us keeping their true identities secret, with the remaining sixty-one million to be paid in cash as soon as the purchase agreement is signed.”

“Why such a specific amount?” one of the executives asked before connecting the dots shortly after, thanks to the clue given by the owner’s request to keep their identities secret.

This was because the expected market cap of the Formula One Group was about $7.80 billion. This meant any shares valued at more than $390 million would give them a total of five percent of the company. As it is a U.S. company, that would trigger the U.S. public announcement rules that require any investor who acquires more than 5% of a company’s outstanding shares to disclose their stake publicly by filing a Schedule 13D or 13G with the Securities and Exchange Commission (SEC). Having to do that would kill any chances of the privacy they wanted, so they limited their share payments to just give them 4.9 percent of the Formula One Group.

“Anyone against the acquisition other than Frank?” the CEO asked after a short back-and-forth, but no one raised their hands. They all knew how important this acquisition was in accelerating their plan. Why would they choose the needlessly long route when they could take a shortcut that didn’t negatively affect the company’s future, while satisfying their shareholders by reaching their targets years earlier than expected?

“Then we will continue with finalizing the offer and move on with the acquisition,” the CEO said, finally bringing the meeting to an end.

A month after the full acquisition of the Formula One company was completed, the news of Liberty Media acquiring TheConqueror.com was finally announced on the same company’s website. The company also used a portion of its cash to give all of its workers a bonus as they were sent to new ownership, bringing an end to Fatih owning his brand. In return, he gained a portion of a company that was going to continue rising in valuation as the sport grew with it.