Diageo sells Royal Challengers Bangalore stake for US$1.78bn
Diageo has agreed to sell its controlling stake in Indian Premier League franchise Royal Challengers Bangalore to an investor consortium led by Blackstone and Aditya Birla interests. The US$1.78 billion deal marks another major step in the drinks group’s strategy to dispose of non-core assets and reduce debt.
As previewed by the drinks business, Diageo has agreed to sell its stake in the Indian Premier League (IPL) franchise Royal Challengers Bangalore to an investor group for $1.78 billion.
The winning bidders include US private equity giant Blackstone and US sports investor David Blitzer, the only entrepreneur to hold a stake in all five American major sports leagues. It will be chaired by Aryaman Birla, through his Aditya Birla conglomerate and includes The Times of India Group.
The IPL has become one of the world’s most prestigious and valuable sporting competitions and includes Asia’s richest man, Mukesh Ambani, and Bollywood billionaire Shah Rukh Khan among its franchise owners.
Rival bidders defeated
The chosen bidder saw off rivals, including the Glazer family, who control Manchester United, Manipal Hospitals’ Dr Ranjan Pai, in concert with US private equity firm KKR and Singapore investment group Temasek. A third contender was Swedish private equity firm EQT and the finance vehicle of Azim Premji, the Indian multi-billionaire.
Initially eight potential bidders are thought to have shown interest in the franchise.
Franchise growth and IPL media boom
Diageo acquired its stake in Royal Challengers Bangalore as part of its takeover of India’s United Spirits from Vijay Mallya in 2012. The team, which has high-profile global support, won both the men’s and women’s championships last year and increased its revenues by more than 70%. The deal also includes ownership of the women’s team.
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Media rights to the competition, which has a global audience, have grown more than sixfold to $5.4 billion since the IPL’s inauguration in 2008.
Regulatory approval expected
The deal is subject to approval by India’s competition authorities and its cricket board of control but no obstacle is expected provided the winning bidders drop their offer to takeover rival franchise Rajasthan Royals.
When added to the $2.3 billion Diageo will receive from the sale of a controlling stake in East African Breweries to Asahi, Diageo will have raised more than $4 billion from non-core activities to reduce its debts, a central plank of new chief executive Sir Dave Lewis’ plans.
United Spirits’ chief executive, Praveen Someshwar, said: “RCB has grown into the most prominent and commercially successful franchise in the IPL and WPL.”
However, the transaction meant Diageo’s Indian subsidiary group could “sharpen focus” on its core alcohol business.
Strategy update expected in May
The decision to dispose of non-core assets had been taken by the Diageo board before Lewis joined on January 1. He is expected to tell shareholders in May details of his strategy to revive the drinks giant’s fortunes. They are expected to include further concentration on cash flow and possible other disposals to reduce debt.
The name Royal Challengers was given to the Bangalore franchise to support United Spirits’ leading brand of Indian whiskey. The team will retain that throughout the coming season, which begins next week, but whether the new owners will seek a costly rebranding for future years is an open question.
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