|9 Months Ended|
Sep. 30, 2018
On January 23, 2017, Liberty completed the acquisition of 100% of the fully diluted equity interests of Delta Topco, the parent company of Formula 1 (the “Second Closing”), at which time Liberty began consolidating Formula 1. The transaction price for the acquisition represented an enterprise value for Formula 1 of approximately $8.0 billion and an equity value of approximately $4.4 billion. The total consideration at the time of closing was $4.7 billion comprised of $3.05 billion of cash and approximately $1.6 billion represented by approximately 56 million newly issued shares of Series C Liberty Formula One common stock.
In connection with the transaction, Liberty entered into a $500 million margin loan on November 8, 2016, secured by shares of Live Nation and other public equity securities held by Liberty (the ‘‘Live Nation Margin Loan’’). Liberty drew approximately $350 million to use for the purchase of Formula 1 on January 20, 2017. See note 11 for additional discussion regarding the Live Nation Margin Loan.
On January 23, 2017, the Company issued 62 million new shares of Series C Liberty Formula One common stock, which were subject to market co-ordination and lock-up agreements, to certain third party investors at a price per share of $25.00 to increase the cash component of the consideration payable to the selling shareholders in the Formula 1 acquisition by $1.55 billion.
Also on January 23, 2017, the Company used a portion of the net proceeds of its $450 million offering of 1% Cash Convertible Notes due 2023, as discussed in note 11, to further increase the cash consideration payable to the selling shareholders by approximately $400 million.
The final acquisition price allocation for Formula 1 is as follows:
Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, value associated with future customers, continued innovation and noncontractual relationships. Formula 1 amortizable intangible assets were comprised of an agreement with the Fédération Internationale de l’Automobile (the “FIA,” and the agreement, the “FIA Agreement”) ($3.6 billion with a remaining useful life of approximately 35 years) and customer relationships of $1.9 billion with a weighted average remaining life of approximately 11.5 years. The FIA owns the World Championship and has granted Formula 1 the exclusive commercial rights to the World Championship until the end of 2110. None of the acquired goodwill is expected to be deductible for tax purposes.
Included in net earnings (loss) for the three and nine months ended September 30, 2017 are losses of approximately $31 million and $225 million, respectively, related to Formula 1’s operations since the date of acquisition, which includes amortization expense of approximately $108 million and $287 million, respectively, primarily related to the amortization of the fair value step-up of amortizable intangible assets acquired.
The unaudited pro forma revenue and net earnings of Liberty, prepared utilizing the historical financial statements of Formula 1, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the acquisition of Formula 1 discussed above occurred on January 1, 2016, are as follows:
The pro forma results include adjustments primarily related to the amortization of acquired intangible assets. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the acquisition of Formula 1 had occurred previously and the Company consolidated Formula 1 during the entirety of the period presented.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef