The Force India F1 sale’s court judgement in the case between Dimitry Mazepin’s Uralkali and FRP Advisory threw some interesting details on the behind the scenes happening.
By 2017 F1 season, things started to look bad for Sahara Force India, as voices in the paddock talked about a possible financial trouble for the team, despite the good showing on track. Co-owner Vijay Mallya’s troubles in India affected the outfit even further.
It was not just Mallya but even Sahara’s Subrata Roy faced his own issues, leaving Force India in a bad position financially – as they did not make much profits and relied on sponsors, FOM money and owners putting their own capital to keep it afloat.
Talks about a possible Force India F1 sale surfaced as Mallya continued to play it down in the media. One of the names who was linked to it was Rich Energy – a UK-based energy drinks company which wasn’t hugely heard of, being led by a flashy William Storey.
The UK High Court judgement, though, throws light on the behind the scenes amid the possible sale to administration situation from 2017 to 2018. The case was filed by potential buyer Uralkali – led by Mazepin – against the administrators, FRP Advisory. The Russian company had Hitech GP’s Olli Oakes involved in the process as well.
The UK-based company were hired by Force India to oversee a sale proposition, whether the potential buyers fulfilled all the legal criteria. FRP’s Geoffrey Rowley was on the case from May 2018 itself when it became urgent that only a sale will help save the F1 team.
Around the time of administration, Rowley explained how the sale can happen to the potential buyers. The judgement noted that, ‘there were two main ways a buyer could structure an acquisition. One was to buy the shares from the existing shareholders in FI and inject sufficient funding into the company to restore it to solvency and seek an exit from administration. The second was to buy the business and assets’.
The direct buying was a difficult process as the buyer would have to get an approval from the consortium of Indian banks, who were after Mallya in multiple cases against him. At the time, Force India had already attracted multiple buyers for its F1 team. The ones who did not make it further in the sale process, included, Castle Harlan, the Moorad Group (now with McLaren) and the Andretti Group.
Meanwhile, from those who did, one of them were Mazepin-led Uralkali and the other being Rich Energy. Both, in fact, submitted a rescue offer on August 3, but it was understood that only one could be right. By then Racing Point UK Limited also surfaced, led by Lawrence Stroll’s consortium.
They did not submit a rescue plan of buying the business and asset until then, unlike Uralkali and Rich Energy, as in a meeting with Rowley, they raised the topic of consent from the Indian banks. It is this meeting which was one of the points of contention from Uralkali.
They believe that Rowley shared confidential information with Stroll and co, which later on helped them secure the bid. From August 3 to August 6, things changed as Uralkali – who couldn’t come to terms with the shareholders of Force India – put in a revised offer to buy the business for £101.5m.
At the same time, Racing Point offered £70m in their ‘draft’ plan, which amassed Rowley’s expectation of £50m bid. Having received those offers, a meeting was held to assess them and as per the judgement, ‘during or shortly after the meeting Mr Rowley decided to offer Racing Point a period of exclusivity of about a fortnight to seek to complete the rescue, in return for non-returnable funding of £10m’.
Rowley then proceeded to discuss with Racing Point about the future work as a new ‘final’ offer of £90m was submitted by them, which was up by £20m from its last offer. This was another major point of contention by Uralkali, where they feel, they submitted a higher bid and yet they were turned down, which wasted their time in the process, as it wasn’t made clear that the highest bidder will not be awarded the F1 team.
While Uralkali were left displeased, Racing Point, meanwhile, made it clear that the rescue plan was not possible as they were not comfortable to share certain documents with the Indian banks. It then became apparent that they will have to buy the business as a whole, which is why the F1 team was renamed as Racing Point and entered as a new entity. The need for administration became apparent where Sergio Perez stepped in via his company.
At this juncture, Uralkali pointed out their reasons for the case as the judgement states: “Uralkali contends that the Administrators failed to conduct a fair and proper sales process and that the Administrators mispresented the criteria they would follow in assessing bids. It claims that:
(a) the Administrators negligently misrepresented on 2 August 2018 that they would select the successful bidder on the basis of the most favourable offer for the business and assets of the company (the “Rescue Offer Representations”);
(b) the Administrators negligently misrepresented that the bidding process would be operated on a level playing field as between all bidders (the “Level Playing Field Representations”);
(c) the Administrators conducted the bid process negligently; and
(d) the Administrators breached an equitable duty of confidence by disclosing confidential information to Mr Stroll on 5 August 2018 relating to Uralkali’s bid.
Uralkali seeked damages for the same, especially from the administrators. On the judgement side, the judges went through all of the documents, whether the hard copies or soft ones, including emails and Whatsapp messages – which had been in abundance.
The judge seemingly quashed multiple points of Uralkali, even though, it agreed that FRP were told by Racing Point that they were to increase their bid by £20m in their August 6-7 meeting, something which FRP’s Rowley noted that it did not happen. The judge felt that FRP provided as many candid information to Uralkali in the sale process.
It noted, ‘Uralkali submitted that Mr Rowley gave some untruthful evidence about his assessment of the first round bids on 3-4 August and, more generally, skewed his evidence to camouflage his preference for Racing Point. I reject these criticisms of his evidence (for reasons more fully set out below). I do not consider that he attempted to camouflage events. Mr Stubbs is an experienced insolvency partner at MDR.
‘He gave his evidence with care and engaged fully with the questions he was asked. He accepted that he should probably have taken fuller notes of some of the communications and events. Uralkali submitted that he was not candid, that he had deliberately omitted key events and had, indeed, tailored his evidence to create a false impression, particularly about the events of 6 and 7 August 2018. I do not agree.
‘I considered that he was seeking to assist Court by giving a fair and balanced account. Uralkali also suggested to Mr Stubbs that he had deliberately created a paper trail. He rejected that allegation forcefully. I concluded that he was a balanced and reliable witness who did his best to assist the court’.
The judge also noticed that several key witnesses were missing from Uralkali side, who could have provided more evidence in the case for them. In fact, the key person – Mazepin himself – who was taking all the decisions did not turn up in person for meetings. He had others who worked under him on ground.
There was also lack of communication from Uralkali towards key people at FIA, FOM and even Mercedes (Toto Wolff), who had to be connected as the F1 team would have required their tick to enter to compete going forward. This was something done by Stroll side, even though the Canadian was late to join the party to purchase Force India.
The judgement further throws light on another point raised by Uralkali, where they argued that Mercedes’ favoured buyer were Stroll-led consortium and that they influenced FRP to push towards them. But the judge did not feel it to be favour as they noted, ‘Counsel for Uralkali suggested that there was some significance in both Mr Rowley being involved in the appointment process, and Mr Stroll knowing about this.
‘I do not agree. There is nothing remarkable about the management of a distressed company which is facing winding up proceedings liaising with a creditor about seeking administration rather than winding up. Mr Rowley had advised FI in his email of 28 June 2018 that it was unlikely that the board of the Company would resolve to commence administration proceedings and that it was therefore likely that any administration would arise only through a creditor’s application.
‘Mr Rowley consistently advised FI that administration held out the best prospect for the company’s creditors and employees. Mr Stroll as a potential bidder was naturally interested in the possible administration and there is nothing surprising about such a party talking in advance to the potential administrator’.
In further notes regarding favour, the judge stated, ‘Counsel for Uralkali submitted that this revealed that Mr Rowley was doing little more than going through the motions and had already decided to favour Mr Stroll. Counsel called the bidding process a rigmarole. I reject these submissions. I find that Mr Rowley was seeking to answer, as tactfully as possible, Mr Stroll’s insistence that he had been anointed by Mercedes and that there could be nobody else seriously in the running.
‘Mr Stroll was a self-confident, even overbearing, businessman, used to getting his own way. Mr Rowley concluded that Mercedes had not committed itself to support Mr Stroll. He was not willing to enter an immediate deal at the meeting. He referred to being sued to explain why he could not deal exclusively with Mr Stroll. I conclude that the sales process was a genuine one and was undertaken to seek to elicit offers.
‘Counsel for Uralkali also relied on a passage in Mr Spencer’s notes which recorded Mr Rowley saying that he had no issue with issuing a sale contract to Mr Stroll that day. But that part of the notes cannot be squared with Mr Rowley saying that he needed to consider other bidders; it is at any rate clear from the outcome of the meeting that Mr Rowley was not prepared to enter an immediate deal with Mr Stroll.
‘I find that Mr Rowley probably conveyed that he would have been happy to enter a contract with Mr Stroll had it been clear that Mercedes had committed to deal with Mr Stroll and nobody else. But since the Mercedes letter did not say that, he could not conclude an immediate deal with Mr Stroll’.
The judge also cleared the matter with regards to Stroll not being happy with all the F1 rivals not signing the document whereby they agree that FOM will divide the prize money among all as it had been happening, even though, Racing Point was to be a brand new entity. The Canadian was disappointed but the judge noted that he would have gone through anyhow with the bid, even without all the signatures.
On the £20m difference matter from before, the judge stated, ‘Counsel for Uralkali devoted a good deal of attention to the circumstances of the Racing Point plan B offer increasing from £70m to £90m. He said that the reason for the increase was that the Administrators were concerned that, if Racing Point’s plan A fell through, the gap between Uralkali’s offer of £101.5m and Racing Point’s offer of £70m would very substantial. If Racing Point offered £90m the gap would be less striking.
‘He submitted that Mr Rowley’s evidence deliberately camouflaged the truth Judgment Approved by the court for handing down Uralkali v Rowley and that this threw light on his credibility. He said that it was also evidence of preferential treatment of Mr Stroll. I have concluded that Mr Stubbs probably did tell Mr Rowley about the conversation shortly after 16:00 on 6 August and that, on the morning of 7 August, Mr Rowley probably thought that the price might move. But I do not think the point has any greater relevance.
‘First, as to credibility, I was satisfied that Mr Rowley was otherwise a reliable and straightforward witness and that he had misremembered this episode. Second, as to substance, I consider that Counsel for Uralkali has overstated the significance of the increase from £70m to £90m. The decision to accept Racing Point’s offer was made when the plan B offer was stated as £70m. The reason for accepting its offer, on which two leading counsel had advised, was a belief that the rescue was viable.
Provided that it was enough to cover the claims of creditors, the amount of the fallback did not much matter. Moreover, while £90m was of course closer to £101.5m, it was still £11.5m short, so looking only at the plan B bids, Uralkali would easily have won the race. If there had really been an attempt to manipulate the process, Racing Point would doubtless have been persuaded to overtop Uralkali’s number’.
The 96-page and nearly 600 pointers court judgement also provided other details on the sale/administration, from all sides, whether the FRP or Uralkali, Racing Point and even the FIA, FOM and Mercedes sayings. The court agreed that the Russian company had some wins in their arguments but overall, they feel that the administrators were diligent in handling the case and made no favours towards Stroll and co.
Since the judgement went against Uralkali, they intend to appeal against it on the point that their bid to buy Force India was higher eventually, as they released a statement which states, ‘Uralkali intends to seek permission to appeal the decision handed down today and to continue to protect its rights in accordance with applicable legal procedures’.
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