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JANUARY 28, 2001

F1 drives Morgan Grenfell to verge of major problems

THERE is blood on the carpet at Morgan Grenfell Private Equity this week, according to London financial sources - and much of it is due to the venture capital company's controversial dabbling in Formula 1 investments over the past couple of years.

The firm's reputation has been badly bruised by its so-far disastrous involvement in SLEC, the F1 racing business controlled by Bernie Ecclestone. Since Morgan Grenfell sold the stake to German media company EM.TV in exchange for shares, the value of Thomas Haffa's company has plummeted, leaving Morgan Grenfell effectively holding the baby.

Industry insiders believe that Graham Hutton, Morgan Grenfell's chief executive, and key director Scott Lanphere have been sharply divided over the deal since 1999 and have been rowing ever since. One sources is quoted as saying; "They had lined up an American investment house to but the stake at a vast premium, but Hutton lost his nerve and said they had to get out."

Reports in the UK Sunday financial press suggest that such is the seriousness of the situation, and the 250 million pound (sterling) hole in its books caused by this debacle, that the MGPE team is on the verge of breaking up. Moreover, several rival private equity companies have apparently shown interest in snapping up the star performers from amongst the Morgan Grenfell team.

According to the Mail on Sunday newspaper, in an attempt to stem the flow of investment directors, Sir Robert Smith, Deutsche Asset Management's vice-chairman and founder of the private equity firm, is expected later this week to meet with Hutton and Lanphere.

Between them, then have to work out how Morgan Grenfell will restore credibility among the third parties it must persuade to give it money to invest in businesses.

It is suggested that Morgan Grenfell is now keen for a quick sale of Coral, the betting chain it bought for £400 million (pounds) at the end of 1998. Such a sale would help it replenish its coffers at a crucial moment.

Elsewhere on the commercial motorsports horizon, the future for the television coverage of international rallying in the UK looks brighter with Channel 4 and BBC both poised to spend £100 million to secure the broadcast rights to the sport.

This would allow the winner of the contest to screen the World Rally Championship for the next five years. The television rights are owned by International Sportsworld Communications which is run by David Richards, boss of the Subaru rally preparation company Prodrive.

Last year he spent 35 million pounds purchasing the rally television rights from Ecclestone and last week closed a 50 million dollar deal with Sony for the exclusive rights of worldwide rally championship computer games.