I thought I would share a few thoughts and observations on the current situation at two of my favorite British Supercar Manufacturers. One seems to be quietly headed back on the right track and the other, well theirs’s less drama in the Kardashian household.
McLaren has been liquidity challenged since COVID put a giant fork in the business. Over the past several years, McLaren has restructured, reduced headcount, sold its headquarters, restructured its debt, divested its McLaren Applied consulting business, and required several cash infusions by its major private shareholders. All of these maneuverings have enabled McLaren to keep the lights on while they sort through a plethora of challenges of which the Artura launch has been one of the most significant in the last 18 months. While the Artura delay has been a drag on McLaren’s finances for the past year and a half, at the same time they have continued to deliver class leading excellence in terms of the 765LT and Elva along with improving quality on the base 720S & GT models. On the Artura, I give McLaren enormous credit for not delivering a car that wasn’t ready (unlike a certain competitor located just south of Birmingham) and taking the time to get it right.
The latest setback on the Artura was highlighted in McLaren’s Q3 2022 results:
After 30 September 2022 the Group identified certain technical upgrades that are required to ensure Artura customers enjoy optimum long-term performance. These upgrades are resulting in delays to wholesale shipments and customer deliveries. This has had an associated impact on group liquidity. In order to help manage through this issue, the Group’s lead shareholder has committed to bolster liquidity by a further £100m. The Group is in active discussions with key shareholders regarding a broader recapitalisation of the Group. It is anticipated that a transaction will be agreed and announced in the first quarter of 2023. Lazard & Co. Ltd is advising the group on the recapitalisation.
The £100 million to cover the liquidity issues from the latest delay on the Artura was supplied by McLaren’s largest and controlling shareholder, Mumtalakat Holding (Bahrain’s sovereign wealth fund). In return for the £100 million, Mumtalakat did take control of part of McLaren’s heritage car collection. While the sale of the heritage car collection has raised quite a few eyebrows, I think it needs to be kept in perspective. Firstly, as McLaren’s largest shareholder, Mumtalakat already effectively controls the heritage collection. Secondly, the cars will not be disappearing off of the boulevard at the McLaren Technology Center. Thirdly, I would not be surprised if at some point, when McLaren’s finances are in better shape, if formal ownership is transferred back to McLaren.
In terms of the recapitalization McLaren is looking to raise in the neighborhood of at least £250 million. The majority is likely to come from existing shareholders Bahrain’s sovereign wealth fund Mumtalakat Holding, Saudi Arabia’s Public Investment Fund (PIF), and Ares Management. I do believe this recapitalization has been planned for quite some time and would have been a key criteria for new CEO Michael Leiters to accept the role. Given the deep pockets of its key shareholders, I do believe McLaren will get the funding needed to support Leiters’ long term business plan. For the last couple of years, McLaren has been making good long term strategic decisions and is getting its house in-order, hence I am quite bullish on its future.
Battle for Control of Aston Martin (AML)
A funny thing happened at Aston Martin when it kicked off its latest £653 million Equity Raise (see: AML’s 2022 Equity Raise). An uninvited guest (Geely) showed up at the party, and what had been a clubby Board of Directors with most members being Stroll appointees (the polite term) suddenly got more independent when Stroll had to give PIF two Board seats in return for their investment. Since the Equity Raise closed, Stroll’s Yew Tree Consortium has been busy buying up shares, increasing its stake from 18% to 28%. The question is why?
Prior to this latest Equity Raise, AML had three major shareholders, Lawrence Stroll/Yew Tree, Invesco (a Global Investment Firm), and Mercedes Benz. Coming out of the Equity Raise, the major shareholders of AML were supposed to be:
(We will ignore Invesco as they have no operational interest in AML). Instead, today the percentages are:
And if Stroll/Yew Tree acquires another 1.59%, they will be required to make a tender offer to acquire all of AML and take it private. All in this is a situation that Machiavelli would love. Looking at the major players and their potential motivations in reverse order:
Geely has had an interest in acquiring Aston Martin for quite some time. Acquiring Aston Martin would add a complementary premium luxury brand to its extensive portfolio which includes Geely, Smart, Lotus, Polestar, & Volvo. Geely was involved in talks with AML at the same time Stroll first bought in in 2020 and most recently made an unsolicited £1.3 bil. offer via their Atlas Consortium at the same time this year’s £653 million Equity Raise was announced. Stroll rejected that offer as he claimed it vastly underestimated the value of AML. Can’t say I agree with Lawrence on this one given AMLs debt load and payables volcano. Geely is known to be patient and is unlikely to take their eye off the prize if they truly want AML. To make matters even a bit more interesting Geely has a 9.7% stake in Mercedes-Benz’s parent company Daimler. Geely has never demonstrated any interest in Formula 1 (or to my knowledge in subsidizing Lance Stroll’s Formula 1 career) and would likely immediately cut ties to Stroll’s privately owned the Aston Martin F1 Team (AMR GP) if they took control of AML.
Mercedes is both Aston Martin’s largest supplier and as a result its largest creditor. Mercedes has had multiple opportunities to take over AML and shied away each time. Within Mercedes, an AML takeover is viewed as an unnecessary distraction. However, as AML’s largest creditor, Mercedes does have a vested interest that lights stay on in Gaydon (I have to believe that AML’s outstanding Payables are a growing issue across all of AMLs suppliers and it is putting increasing negative financial pressure on all of them). To date Mercedes has also likely tolerated the highly incestuous AML-AMR GP relationship as they are also a large creditor on the other side as well as they are AMR GP’s engine supplier (more details: AML’s Q3 2022).
I’ve seen two recent reports on Mercedes’ current shareholding in AML, the 1st has it at the 9.7% which was listed in all the 2022 Equity Raise documents. The second from Market Screener has it currently at 1.95%. If this latter number is accurate, you don’t need to be Pythagoras to figure out where Geely’s stake came from. Market Screener also has Invesco’s holding current at 1.91% (down from 10% earlier in the year) which could be an alternative source for Geely’s shares. Just to make things more interesting, AML owes Mercedes another large block of shares (per page 207 of the Equity Raise Prospectus equal to £140 million in value) by July 2024 as part of the technology transfer agreement Stroll signed in 2020. If and when Mercedes finally wants to give Stroll the Anne Boleyn treatment, which I can definitely see happening sometime after that 2ndblock of shares is delivered, I would not be surprised if there is a private share swap between Daimler (Mercedes Benz’s parent company) and Geely.
PIF arriving on the scene has added yet another layer of intrigue. They are quickly becoming the Habsburgs (key difference is PIF uses cash where the Habsburgs used marriage) of the supercar industry with a finger in lots of different pots. PIF now has significant holdings in McLaren, AML, & Pagani along with electric car maker Lucid. PIF dropping £174 million in Stroll’s tin AML cup is pocket change for the Saudis. To put it in perspective, a PIF Affiliate just threw Lucid another $900 million lifeline to get it through 2023. So why are the Saudis helping keep Stroll’s AML afloat? It goes back to F1, Amarco, (the Saudi Oil Company) became a “strategic partner” of AMR GP in 2022. Aramco basically ended up with AMR GP as all the other leading F1 teams already had sponsorship deals with other oil companies. Aramco’s interest in F1 ties in with the Saudi’s now hosting a Formula 1 race at Jeddah Corniche Circuit (since 2021) and a major push to open the Kingdom up to tourism and modernize its image. Whether the Saudis have a grand plan to eventually take over and merge all their automotive holdings is anyone’s guess but I would not be surprised to see either AML or McLaren using Lucid technology for their EV supercars.
The Stroll/Yew Tree Group needs to control AML but likely has zero interest in owning it outright as that would mean taking on responsibility for its debt mountain. One of the largest, if not the largest, beneficiary of Stroll’s control of AML has been his privately owned race team, AMR GP (formerly Racing Point) that his son, Lance drives for. On top of the £21 million annual sponsorship fee AML pays AMR GP, Stroll/AML awarded AMR GP a ten year royalty free right to use the Aston Martin brand, per page 210 of the latest Equity Raise Prospectus:
On 27 February 2020, AML Limited and AMR GP Limited (formerly Racing Point UK Limited) (AMRGP) entered into a sponsorship agreement, as amended on 13 March 2020 and amended and restated on 24 May 2022 (the F1TM Sponsorship Agreement), pursuant to which AML Limited granted AMR GP the worldwide, royalty-free right to use the “Aston Martin” name, logo and branding (the AML Branding) in respect of Formula 1TM participation for an initial 10-year term starting on 1 January 2021, with the possibility for AML Limited to extend the term for additional five year periods up to the end of 2050, at the Board’s discretion, and with the possibility to extend for a further five years by mutual agreement between AML Limited and AMR GP (the Branding Arrangements).
Additionally, in interviews Stroll’s has explicitly stated that Aston Martin Racing GP was able to sign “hundreds and hundreds of millions of dollars of sponsorship” off the back of the name change from Racing Point to Aston Martin Racing GP. If Stroll/Yew Tree loses control of AML, all this likely goes away. While the Aston Martin name may help attract sponsors to AMR GP, strip it away and you have a F1 team that has finished 7thtwo years in a row and who’s longest tenured driver (and owner’s son) has finished 11th in 2020, 13th in 2021, and 15th in 2022 showing consistent progress backwards. Without the Aston Martin brand, AMR GP is not exactly a magnet for sponsorship dollars. Basically, they are another “Haas” but without benefit of having a global celebrity as the Team Principal. To top it all off, I have heard that work on AMR GPs new £200 mil. headquarters at Silverstone has stopped as construction crews have walked off the site due to payment issues. I haven’t been able to confirm this but the source it came from is normally right. If so, it would appear that the money problems extend to both sides of Stroll’s automotive empire. Net net, Stroll needs to keep control of AML to be able to continue supporting his AMR GP racing team. Hence likely why Stroll/Yew Tree has been madly buying up AMLs heavily depressed shares in the last several months.
In summary, in Geely you have an unwelcome shareholder that clearly wants to own AML and has the capabilities to turn the business around. Mercedes has zero interest in control but due to the size of its shareholding, can play the kingmaker if it so desires. What PIFs long term plan is, is hard to tell but they can go a number of different directions and I believe a lot of it will depend on how their relationship with Stroll develops. For Stroll Sr., losing control will simply not end well and has ramifications that extend beyond AML. Somewhere Machiavelli is smiling.
Next up, the 2022 SSO Awards……
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