Exclusive: Texan Teachers Roar Onto F1 Grid

Hundreds of thousands of Texan teachers are poised to become stakeholders in Formula One (F1) motor racing in a $200m (£125m) deal, Sky News can reveal.

The Teachers’ Retirement System of Texas (TRS (SNP: ^TRSY - news) ) has reached a preliminary deal to acquire a 3% shareholding in F1 from the estate of Lehman Brothers, the investment bank whose collapse in 2008 helped to trigger the global financial crisis.

Talks between the Texan pension fund and the Lehman estate are understood to have been brokered by CVC Capital Partners, the largest shareholder in F1 with approximately 35% of the company.

People familiar with the discussions say that a deal could be sealed as soon as today, although they cautioned that it could be delayed.

If an agreement is reached, it would be the first reduction in Lehman’s 15% stake in F1 since the Wall Street bank went bust in September 2008. Further placements of its remaining shares are likely to be made in future because the estate is in wind-down mode, insiders say. The entire Lehman stake is worth more than $1bn (£0.62bn) based on the valuation implied by the Texan investment.

Because of the way the deal is structured, it will attribute to F1 an equity valuation of approximately $7bn (£4.3bn), with the Texan fund investing just ahead of the distribution of a large dividend payment.

CVC (Taiwan OTC: 4744.TWO - news) is also understood to be taking a multimillion-dollar private placement fee for arranging the stake sale, which follows a series of private placements undertaken several months ago by CVC.

Those transactions saw BlackRock (NYSE: BLK - news) and Waddell & Reed, two US investors, acquire 23.6% of F1 between them, investing almost $1.8bn (£1.1bn) at a valuation of just over $9bn (£5.6bn). Norges Bank Investment Management, an arm of the Norwegian government, invested $300m (£186m) for a 4.2% stake.

Under the shareholder agreements governing F1’s parent companies, other shareholders are not allowed to sell part of their stakes without CVC’s consent. Given that it brokered the Texan investment, people close to the talks said CVC’s consent for the latest deal was not in doubt.

There are no plans for any of the participants to announce the Texan investment because it is a private deal, one insider said.

The TRS is not among the more prominent investors in British companies, but it is one of the shrewdest investors in private equity, generating the second-highest returns from the asset class among US public pension funds, according to US surveys.

More than 1 million current and retired teachers are members of the state’s pension fund, which had more than $106bn (£66bn) invested at August 31 last year, about half of which was in private equity, according to the TRS website.

CVC had been planning a stock market listing of F1 in Singapore earlier this year, a move that was postponed because of market turmoil exacerbated by the Eurozone debt crisis.

People close to CVC now say that while the buyout firm remains in “a state of readiness to press the button” on an initial public offering (IPO), it is unlikely to be pursued for at least another year. Bernie Ecclestone, F1’s chief executive, has also signalled as much in recent public comments.

The latest reshuffling of F1’s shareholdings come as CVC reaps a dividend worth hundreds of millions of pounds from the sport. A restructuring of the sport’s financing arrangements includes an extension of debt facilities until 2019 and improves the risk profile of the business by resetting some of the existing bank covenants.

CVC’s recruitment of a number of new long-term US investors is also likely to have another objective: helping the sport on its perpetual quest to gain popularity in the country, where it has struggled to generate widespread public interest.

CVC declined to comment, while the Lehman Brothers estate and the TRS could not be reached for comment.