KKR offload plan on table

Source
Tuesday , May 26 , 2009
by: SAMYABRATA RAY GOSWAMI

Mumbai, May 25: The “Manchester United” of the Indian Premier League may have pitched itself a notch too high.

The Kolkata Knight Riders, the IPL team owned by superstar Shah Rukh Khan and friends, is looking to offload 10 to 20 per cent of its shares, possibly by June.

The Calcutta franchise, which finished at the bottom of the heap this season, retains the highest brand value because of its star and glamour quotient. Shah Rukh reportedly had ambitions of turning the team into one of the top five franchises in the sporting world such as ManU and basketball giant Los Angeles Lakers.

For example, in spite of not making it to the semi-finals, KKR, Kings XI Punjab and the Mumbai Indians top the charts in online merchandise sales among international cricket fans, according to data released by online shopping company eBay.

But, sources in the hard-nosed world of finance said, the owners would have to rework the value of the team if they want to get a buyer.

“KKR needs to get real — they do not weigh as much as they used to last year. A mere association with Brand Shah Rukh is not enough to hike KKR’s valuation. In fact, his own brand appeal is not exactly at a peak right now. Investors look at the hard-core business appeal, not star value, when taking such decisions. SRK’s expectations are a bit unrealistic, so we have backed out,” said a source in TPG Capital, formerly Texas Pacific Group, which negotiated with the owners for a share of the Knight Riders pie.

Shah Rukh could not be reached for comment and no one was willing to reveal the value the owners had worked out for the franchise.

The actor, through his Red Chillies Entertainment, and friends Jay Mehta and actress Juhi Chawla, bought the Calcutta franchise for $75 million in January 2008. International valuation agencies have pegged KKR’s current value between $42.1 million and $22 million — a 45 to 70 per cent erosion.

However, compared to international norms, brand valuation is still a relatively subjective matter in India, say experts.

“A brand valuation exercise in India is typically a more subjective exercise compared to a business valuation exercise. This is primarily due to the limited availability of data required to apply the usual methods of brand valuation,” said a source in KPMG Corporate Finance, which was searching for buyers for Deccan Chargers, owned by Deccan Chronicle, in October 2008.

Eventually, the Chargers did not sell as there were no buyers ready to meet their “sky-high expectations”, said the source.

Shah Rukh, who has assigned Mumbai investment bank Ambit as his negotiator for stake divestment in KKR, is not ready to accept the steady devaluation of the team, said a source in Ambit.

“SRK feels KKR deserves higher value. Investors on their part are looking for a good deal in a recessionary market. But we are sure there will be a middle path and a deal will be closed by June,” said the source in Ambit. The source declined to elaborate further.

At present, private equity investors such as New Silk Route, Actis and Standard Chartered Private Equity are among those negotiating for a piece of the Knight Riders. British billionaire Mike Ashley — who owns among other businesses Newcastle United football club, which was relegated from the English Premier League yesterday — is also said to be a prospective buyer.

“Shah Rukh knows that the USP of the KKR brand lies in its perceived potential. He is keen to sell before it slips further,” said a source in the Knight Riders.

KKR, which spent about Rs 65-75 crore in outgoings this season, claimed to have posted a Rs 13-crore profit last season.

“Our outgoings are the highest among all IPL teams largely because of our massive support staff. KKR co-owner Jay Mehta is due to prepare a report on who among the support staff should be retained. A more compact team will reduce our spending and ease a bit of the financial pressure,” said the KKR source.

The KKR core group is expected to take a final call on the future of cricket director John Buchanan and his friends and family, who constitute the majority of support staff members, in July.