The Supercar Trio: Larry, Ben, & Mike
May 28, 2023
Will Audi Buy McLaren? & a Brief Update on the Aston Martin Saga
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.
Ownership
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:
- Mumtalakat Holding Company (Bahrain Sovereign Wealth Fund) 56.4%
- TAG Group Limited (Mansour Ojjeh) 14.32%
- Nidala (BVI) Limited (Michael Latifi) 9.84%
- Favorita Limited 5.78%
- Perlman Investments Limited 5.77%
- McKal Holdings Ltd 5.24%
- Acanitt Limited 2.65%
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:
- McLaren Group 85% currently, dropping to a minimum of 67% in 2023
- MSP Sports Capital 15% currently, rising to a maximum of 33% in 2023
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.
Audi
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.
BMW
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.
Summary
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.
Thoughts and comments? Please see the comments section below.
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February 2022
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It’s all very interesting and I’m curious how it will all pan out. There are so many possible lines with both how Porsche and Audi could end up in F1. Jost Capito at Williams has clear links with VW( as does Red Bull. It’s interesting that Honda has change course a little with extending their partnership with RB. It’s one thing to sell the IP of the engine to red bull, it’s another for the VW group to come in and use that base to build their own. I personally don’t see Porsche as a F1 brand so time will tell.
It is and has been an interesting journey to follow VW around the F1 circus. They engine rules starting from 2026 have changed the way they like it so that is a start.
I agree it would be odd to buy McLaren racing and re-brand to Audi completely given the McLaren heritage. But, I do not believe Audi would take only engine supplier and a place in the title of the team. Looking at Audi’s history in motorsports they go all in or nothing. So there must be more on the table, for both parties. One thing I miss in this article: McLaren racing is a lot more than F1. McLaren racing is also in Indycar, ExtremeE and E-sports. So that does not make the puzzle any easier. In the end because of all that it would not be strange to see the deal flop.
There are also talks about Red Bull and Porsche. They would use the same engine under a different name. I do not see how that would work either because a Porsche named engine coming out of a brand new RB factory in England also does not sound like a great fit for Porsche. Then again, its not easy to get into F1 and not everything is possible. Porsche and F1 somehow feel like a strange fit. Maybe Audi should buy the RedBull and AT teams. Total rebrand + RB sponsor.
About AM and the 707: I laughed out loud reading the 4000 units quote from Stroll. Shouting unrealistic numbers does not gain trust.. Hybrid DBX in Europa asap. Lagonda body on DBX platform after that. Design fitting with AM customers instead of aggressive aftermarket tuning bodykit styles they but on now, ASAP.
really not sure what a DBX707 brings to the party .. given its not flown out the door are buyers going to be willing to pay an even higher price for a car that is more than fast enough already and 40% take up hardly makes it exclusive to justify a further premium.
McLaren … Audi buys F1 team and BMW buys road cars .. everyone happy
Can someone point me to exactly where Stroll committed to 6k plus DBX per year?
Stroll mentioned in Financial Times that DBX will grow from 3k to 4k and not to 6k. Also Tobias mentioned that 707 will take 60% of DBX sales so that would make it 2.400 707’s per year and 1.600 V8’s and Straight 6’s. I think they will announce 2022 targets on the 24th.
My bet is thta at some point they will drop V8 cause it will be slowest selling and keep Straight 6 which they can market as mild hybrid (which it is)
On Autocar today Stroll is denying seeking a replacement for the second worst automotive CEO Tobias Moers (the worst being Thierry Bollore of JLR).
I guess the man from Ford, he said no!
Aston share price has continued to circle the drain. Some days improving, but mostly sinking. I think it’s why Aston have been announcing future models, but that’s not convinced the market. I too am not convinced adding more power to the DBX is the answer as there’s only so much the kids will be able to take before the rear seats become vomit city… And don’t mention the dog!
The biggest problem is the one neither Stroll nor Moers is willing to deal with. Reichman designs don’t sell. To save Aston you need to sack Reichman. We really should be seeing a refresh of the DB11 right now, with the Vantage not far behind. Something that addresses Reichman’s poor designs, and updates the Mercedes infotainment systems. Yet instead Moers is doing what he did at Mercedes and added more power to ugly cars.
https://www.autocar.co.uk/car-news/business-finance-and-corporate/aston-martin-chairman-no-plans-replace-ceo-tobias-moers#comment-363313
I’m still trying to figure out the VAG angle…
There’s been talk over the last decade of Porsche wanting to join F1 and how they’ve even been involved in engine format talks, but nothing has come of it. It’s even rumoured that Porsche had an F1 engine already designed and ready to go, but nothing public confirming this.
Ron Dennis stated that you needed a works engine deal to be able to win a world championship, and I would have to agree. Even back when Red Bullies were running Renault engines they were taking the lead as the Renault F1 team had one foot out the door. Now of course, after McLaren took all the pain from Honda, Red Bullies have take success with the Honda works engine deal.
McLaren’s name in F1 is of huge value. It then begs the question of merging McLaren in to any other brand? If you do so, so that McLaren disappears and becomes Audi, then you’re not adding value. In fact, it will add nothing to the value of the VAG group at all! Mergers and acquisitions rarely do apparently.
An engine deal is terrible value. Honda have spent billions developing their engine for Red Bullies to ignore them when they win. Plenty of criticism when losing, but no praise when winning. I say that, but it took the illegitimate world champion over a week before a painful statement from him thanking Honda. He didn’t care.
The options are if you buy the team it doesn’t add value to your business, and if you simply supply engines you don’t get the rewards. Are there any other options for VAG?
Do what Mercedes did. Well, to a point because they’ll never be able to buy the most successful team in F1 history, Brawn GP, who won every championship they were entered in to. But start by supplying engines to McLaren with a view to buying another team and add value to it by then being the works and branded VAG team. The options right now are Haas or Williams. With Haas you might as well just start a new team fresh and pay the $200 million entry fee. Williams, however, you get something for your money.
Of course if you take that long term approach then the Aston Martin branded team may also because available as future millionaire and former billionaire Stroll sells up. Learning that to make a small fortune in F1 you often have to start with a large one.