Since last November, there have been multiple rumors that Audi (technically it would be the Volkswagen Group which owns Audi, Bentley, Lamborghini, Porsche, and a number of other brands) is about to buy McLaren. McLaren, via Zak Brown CEO of McLaren Racing, has publicly admitted talks have taken place but no agreement has been reached. The reality is these sort of talks between companies do take place on a fairly regular basis and almost all come to nothing. Even when they do get well advanced, it’s no guarantee a deal actually happens. BMW made an offer for McLaren a number of years ago that was turned down. So, the question is, how likely is an Audi takeover of McLaren? To be able to answer the question, the first thing you need to do is understand McLaren’s Corporate Structure followed by its ownership.
The New Corporate Structure
In 2021 McLaren took several aggressive steps to get its financial house in order that resulted in major changes to its Corporate Structure. These changes would make any takeover of the business significantly more complicated. Going into this decade, the McLaren Group was a combination of 3 operating companies: Automotive, Racing, and Applied Technologies that all rolled up into a common ownership structure. As of mid 2021, the McLaren Group now looks very different. The Racing and the Automotive businesses have been decoupled and the McLaren Group is now essentially an automotive manufacturer with a large (85% currently, dropping to 67% in 2023) equity stake in an F1 Team (McLaren Racing). In addition, the Applied Technologies division was sold off in August 2021.
As a private company, it’s difficult to decern for certain what the current shareholdings are but as of 2021 the owners of the McLaren Group were:
In addition, Ares Management Corp & Saudi Arabia’s Public Investment Fund (“PIF”) hold £400 million in Preference Shares and Equity Warrants. There may be other holders of Equity Warrants and Preference Shares not publicly disclosed.
And for McLaren Racing:
This new Ownership Structure makes gaining majority control of both the McLaren Group and McLaren Racing fairly straight forward (you would only need to acquire Mumtalakat Holding Company’s (Bahrain Sovereign Wealth Fund) 56.4% shareholding) but a full (100%) buyout extremely complicated given the number of different shareholders who have come in at different times and likely have different expectations on what they are looking for as a return on their investment.
The rumors of Audi buying McLaren appear to be based on the thesis that the Volkswagen Group wants to get into F1 under the Audi brand and that acquiring McLaren Racing would be the most efficient and effective way to do so. While that may be true, getting the McLaren Group to agree to a buyout of just McLaren Racing would be difficult to say the least. Right now, the McLaren Group’s 85% holding in McLaren Racing might just be their most valuable asset. Racing is also at the core of the McLaren equity so relinquishing control over the racing side of the business would be highly unpalatable. In addition, a situation where you have two distinctly different companies (McLaren Group for Automotive and Audi for McLaren Racing) owning and managing the same brand name is a recipe for disaster. For Audi, buying McLaren Racing and then dropping the McLaren name also makes little sense as much of what they would be paying for is the McLaren brand and its F1 heritage. Buying all of McLaren also makes little sense for the Volkswagen Group as they already have several brands (Bentley, Lamborghini, & Porsche) in similar spaces on the automotive side. In fact, its more likely that the Volkswagen Group is looking to divest several of these brands (Bugatti has already been sold off), not add to its collection. Where I can see the potential for a deal is on the Racing side. Audi could come in as a minority partner, title sponsor, and engine supplier. The F1 Team would then operate as Audi McLaren. While that situation would not give Audi complete control of the F1 Team, it would get them a seat at the table, their name on a car, and open the door to future cooperation. Overall, it would be a situation familiar to McLaren. From 1995 to 2009 Daimler-Benz (Mercedes) was a 40% shareholder in the team.
There has also been a bit of buzz that McLaren recently has had a couple of conversations with BMW again. I have no idea if this is true but it would almost be an inverse situation vs. Audi. The McLaren Automotive business would fit in well with BMW’s other brands but the Racing side would be of no interest. BMWs last foray into F1 didn’t end well and I can’t see them being interested in diving back in. Not being in F1 since 2009 certainly hasn’t hurt BMWs car business.
The only thing clear at this point is the Volkswagen Group under the Audi brand is looking to get into F1 in the near future. The easiest path is via acquiring an existing F1 Team and McLaren would certainly rank at the top of the list for potential targets. For McLaren having a deep pocketed corporate overlord would certainly be of interest. Getting the alignment of all of McLaren’s shareholders for any transaction would certainly be a herculean undertaking. Whether the VW Group would be willing to take on McLaren Automotive in order to seal the deal for McLaren Racing is very much to be determined.
And a brief update on the Saga of Aston Martin
When we last left the Valkyrie (Aston Martin Annouces Earnings Miss), Aston Martin had claimed on Jan 7, 2022:
10 Aston Martin Valkyrie and Valkyrie AMR Pro vehicles were shipped in Q4
“Shipped” it turns out just meant that the Valkyries left the Gaydon manufacturing facility and were deposited in a warehouse in Southern England. The first Valkyrie wasn’t actually delivered to a customer until mid January in Munich. Since then, two more “customer” Valkyrie coupes have appeared at Aston Martin dealerships and one Valkyrie AMR Pro has shown up in Switzerland. Only the Munich Valkyrie has been seen on the road, but that was only for the filming of a short “spotted on the road” driving video that Aston Martin arranged and posted on its social media accounts. To date there have been no independent sightings of a Valkyrie being driven which does serve to reinforce the belief that it still doesn’t work properly. In the “Trading Update” that Aston Martin released on January 7th, one of the “positives” they called out was a Year-end cash balance of c.£420m. A bit of quick math indicates that this is roughly equivalent to the value of the deposits Aston Martin has collected across the Valkyrie range. However, Aston Martin has also collected significant amounts in deposits for the Valhalla, V12 Speedster, and V12 Vantage Final Edition.
Regarding the rumors of Tobias Moers future at Aston Martin being in doubt, there have been several reports in the press on Stroll approaching outside executives about the position. From what I’ve heard, Stroll’s challenge is no one wants the job. These types of positions can be very difficult to fill, for example no one wanted the job of CEO at Lehman Brothers in August 2008.
And finally, on the DBX SUV, Aston Martin just announced a new more powerful version, the DBX707. The imagery the name evokes is an interesting one as my memories of the Boeing 707 are of a loud, dated, & quite uncomfortable airplane. Aston Martin stated they expect to sell 4,000 DBX707s per year with it making up 60% of total annual DBX sales (which would be 6,600). Considering Aston Martin struggled to “ship” 3,001 DBX SUV in 2021, this seems like quite the stretch. I can only imagine that these projections were done at a coffee shop in Amsterdam.
Aston Martin reports its 2021 earnings on February 24th.
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