McLaren’s Capital Reorganization is Complete

On Friday, March 22nd, McLaren released the following statement below. This statement finally brings closure to what has been a long drawn out highly complex restructuring (more on this below from the Dec 2023 article) of McLaren’s ownership and capital structure.  As usual, what is highly interesting is not only what’s said but what is not. 

 

McLaren Group Completes Successful Capital Reorganisation

 

Further to the announcement on 19 December, McLaren Group Limited (“the Group”) today announces its capital reorganisation has been completed. This marks a major milestone in the ongoing transformation journey of the luxury automotive and elite motorsports Group.

 

Under the reorganisation, long-term strategic investor Bahrain Mumtalakat Holding Company(“Mumtalakat”), the sovereign wealth fund of the Kingdom of Bahrain, takes full ownership of the share capital of the Group following the conversion of all preference shares into ordinary shares.

 

Paul Walsh, McLaren Group Executive Chairman, said: “We are delighted at Mumtalakat’s continued commitment to McLaren through this deal, which strengthens our ownership and governance structure. This will further enable us to focus on delivering our long-term business plan, including investment in new products and technologies, whilst continuing to explore potential technical partnerships with industry partners.”

 

His Excellency Shaikh Abdulla bin Khalifa Al Khalifa, Chief Executive Officer of Mumtalakat, added: “Today’s announcement crystallizes the next phase of the Company’s trajectory of growing its leadership position in the luxury super car and motorsports industries. This reorganisation and new simplified structure positions McLaren for success and opens up strategic avenues, which include exploring new partnerships to enhance the company’s growth over the coming years. “The completion of this process is also a significant milestone that reflects our support for McLaren’s continued innovation and long-term commitment to excellence,” he said.

 

What Was Said

In the statement both Paul Walsh & His Excellency Shaikh Abdulla bin Khalifa Al Khalifa reference partnerships.  The fact that they both reference partnerships very clearly is a strong indicator that McLaren’s days of “going it alone” are numbered.  This will also help keep future development costs down (and the need for further cash infusions) which I am sure is a Mumtalakat priority. I expect we will be hearing more on this shortly.  While I have heard a number of names of potential strategic partners bantered about, my personal choice would be BMW.  BMW and McLaren do have history together.  It is a BMW supplied V12 that powers the iconic McLaren F1 plus BMW has been a good steward to both Mini Cooper and Rolls Royce.

 

What Wasn’t Said

There is no mention in the statement on the actual recapitalization.  The last we actually heard on funding was a rather odd statement back in late January: “McLaren Holdings Limited (“the Group”) today confirms £30m in additional funding, as part of an ongoing recapitalisation process to support McLaren’s product development strategy.”  While we will find out a bit more on McLaren’s financial situation on April 25th when they release 2023 results, the information will be quite dated by the time it arrives.  On a more positive basis, the fact that McLaren has only needed a £30 million capital infusion so far this year is quite positive and an indicator that the business is recovering.  In 2023, McLaren required £450 million in funding. 

 

The Future

With the focus on building partnerships, my guess is their plan is to first build a strategic partnership and over time turn that into equity investments.  This could then potentially lead to a takeover/sale.  The “rent to buy” model is well established, and it gives both organizations ample time to get comfortable with each other.  It also tends to lend itself towards a much smoother integration.  The other, and I believe less likely option, is an IPO in several years.  For this to be a realistic option, the McLaren will need to deliver several years of both robust growth and positive earnings.

 

Time will tell…….

Dec 2023 Article on the Recapitalization:

Santa Arrives: Latest on McLaren

Santa arrived a few days early in Woking this year and slid down the wind tunnel (the McLaren Technology Center would never have anything as dirty as a fireplace and chimney in it) with a large bag of cash over his shoulder.  Exactly how much cash was in that bag is still very much a mystery as the announcement that McLaren released on December 19th stating that the Recapitalization had been approved (McLaren Recapitalization Approved) was about as rich on details as one of Bill Belichick’s (Belichick is the Head Coach of the New England Patriots) post game press conferences.  

The announcement stated:

McLaren Group Limited (“the Group”) today announces that its shareholders have unanimously approved a full recapitalisation of the Group.

 

The recapitalisation, which will introduce a simplified share structure and streamlined governance process, represents an important step in the Group’s continued mission to create world-leading supercars, offering a unique and unrivalled luxury customer experience and expanding to new markets and customer groups.

 

Paul Walsh, McLaren Group Executive Chairman, said: “Completing the recapitalisation is a significant step in the ongoing transformation of the Group and provides a solid platform from which to grow our product offering and brand presence.”

 

H.E. Shaikh Abdulla bin Khalifa Al Khalifa, Chief Executive Officer of Bahrain Mumtalakat Holding Company, the majority shareholder of the Group, said: “Today’s announcement is testament to the diligent steps that have been taken in what is a comprehensive and long-term plan with our partners to deliver an optimal governance structure as the Group continues to design and deliver the world’s most innovative and exhilarating supercars.”

As background, the McLaren Group is the holding company that owns 100% of McLaren Automotive and I believe around 67% of McLaren Racing.  McLaren Racing is treated as a joint venture and is subject to equity method accounting so the recapitalization only effectively impacts McLaren Automotive.  What the announcement clearly indicates is the various classes of shares have now been consolidated and corporate governance streamlined.  The Bahrain Mumtalakat Holding Company is clearly still the majority shareholder and effectively in control of McLaren.  The share class consolidation is critical if the end game is to either float McLaren on the stock market or find a buyer.  The fact that Mumtalakat is referred to as the majority shareholder would indicate that a number of minority shareholders remain.  Paul Walsh’s comment that the recapitalization: “provides a solid platform from which to grow our product offering and brand presence” would imply that McLaren now has the funding in place needed to develop the next generation of models. 

What the announcement doesn’t include is any indication on the size of the recapitalization.  There also is no mention of retiring the $620 million of 7.5% bonds that come due in 2026.  As long as these bonds are in the market, McLaren will need to continue disclosing its results publicly.  As a very wise gentleman recently pointed out, these bonds are currently yielding 14% and if the bond market thought McLaren was about to retire them, they wouldn’t be trading with that yield. The benefit to retiring the bonds is it would allow McLaren to clean up its balance sheet and restructure out of the public eye. 

Assuming that McLaren doesn’t retire the bonds in the very near future, we should find out more details on the recapitalization when McLaren releases full year 2023 results in Q1 2024.  What is clear is that Mumtalakat and the other shareholder are not expecting to have to inject any new capital in the near future as they believe McLaren is now “fully recapitalized”. As to why McLaren has been so thin on recapitalization’s details, my guess is it has as much to do with current events in the Middle East as anything else.

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One Thought on McLaren’s Capital Reorganization is Complete
    John.
    24 Mar 2024
     10:38pm

    I’d like to know who they bought out? Did Mercedes still have shares in McLaren? Because that also rules them out of being that partner.

    And on the subject of partners, who could they go with? Elon Musk? There’s history there too. Musk owned a McLaren F1. Also crashed it, not sure if that car got back on the road or not. But the EV drivetrain would be of much interest to McLaren.

    It’s the EV drivetrains that will be of most interest to these supercar companies. How can they build an exciting and sporty sports car with tons and tons of batteries weighing the cars down?

    I’ve driven the Tycan and it’s an impressive machine. Before you know it you’re breaking speed limits, and cruising along with normal traffic. Then you realise you’re talking with your passenger without having to raise your voice in the slightest. I only drove on straight roads but you could feel the weight when breaking, and that’s not so good for a Porsche.

    Then you get in a Tesla model 3 and it’s quicker still. Yet, here too you have a weight issue.

    It’s really those batteries that are the problem. Strip them out to get a sporty car and boom, there goes the range. Without that range, and it’s one that sporty drive will decimate, you have a big problem. Little point in having a fast car if you then have to copy the hare and go for a nap every now and then!

    Biggest challenge for all automotive companies is the transition to EV. You could do what Jaguar are doing and tell your entire customer base to F* off as Thierry Bollore did, but that’s probably not a good idea. McGovern (JLR) pretty much said he’s not going to target poor customers, ones that have less than £100k to spend on a car. Yet the vast majority of people need something in the low tens, if that. The developed world can’t afford EVs, what chance has the developing world?

    Porsche have the right idea by developing sustainable fuels, and those could be used by the developing world once the process is scaled up and costs come down.

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