Universal Music spin-off to test investor appetite for music


The world’s largest music company, behind stars such as Taylor Swift, Drake and The Beatles, will debut on Amsterdam’s Euronext stock exchange with shares that will be distributed to Vivendi investors. The move comes amid growing interest in the resurgent music industry as an investment and following a recent boom in the value of music catalogs, music streaming companies and technology to creators.

Analysts put Universal Music at over 40 billion euros, which equates to about 46.9 billion dollars, more than recent estimates and transactions indicate. In August, the company was valued at 33 billion euros, when billionaire William Ackman bought a 10% stake through his hedge fund Pershing Square Holdings Ltd. The purchase came after Mr. Ackman abandoned his ambitious plan to use his specialist acquisition company, or SPAC, to invest in Universal, citing concerns from the Securities and Exchange Commission.

Last year, Chinese internet conglomerate Tencent Holdings Ltd. doubled its stake in Universal to around 20% in a deal that valued the company at around € 30 billion.

When the shares are listed, the Tencent-led consortium will hold a 20% stake, and Mr. Ackman and Vivendi’s entities will each have 10%. The remainder will be distributed to each Vivendi shareholder. Thus, the French investor and former president of Vivendi Vincent Bolloré will hold 18% of the capital. There are no restrictions for investors that would prevent them from selling the shares upon receipt.

Tencent and Mr. Ackman have expressed interest in owning Universal for the long term. Vivendi said it would retain its stake for at least two years to remain a partner and for tax reasons. Whether Mr. Bolloré chooses to retain his stake – which would be worth around 6 billion euros for a valuation of 33 billion euros – will be closely watched by investors and analysts.

Given that Mr. Bolloré controls Vivendi through a 27% stake, this means that he will directly or indirectly control some 28% of Universal. Relatives of Mr Bolloré said it was not clear what the mogul would do with his stake, although they expect him to keep it for some time.

Mr Ackman presented a bullish case for music, saying it is a better streaming business than video and drawing comparisons to the software industry. “You need food and water to live, but the music comes next,” Mr. Ackman said. “If you own UMG, you own a royalty on people who listen to music.”

In its presentation to analysts on Capital Markets Day last month, executives at Universal said they expected revenues to grow by more than 10% this year at constant exchange rates, and that profits increase by double that amount.

The targets led Barclays to increase its valuation of the company to 41.4 billion euros, from 38.5 billion euros. JPMorgan analysts have said they believe their benchmark of € 54 billion “will prove to be conservative.”

Once public, analysts say, Universal will be the best way to participate in the music market. Competitor Sony Music Entertainment is only accessible as a small piece of Japanese conglomerate Sony Group Corp .; Warner Music Group Corp. has less than 15% of its shares listed on the stock exchange and is controlled by billionaire Len Blavatnik.

Universal’s prospectus describes growth prospects for the music industry, in which it has a market share of around 40%. The more large groups it has under its umbrella, the more Universal gets from its licensing deals with music streaming services, such as those offered by Spotify Technology SA, Apple Inc. and Amazon.com Inc. Nine of Top 10 Artists. 2020 record, by sales – and 10th installments – are on its list, according to the International Federation of the Phonographic Industry.

After years of decimation due to piracy and falling CD sales, the music industry has been growing since 2016, thanks to the boom in music streaming. “Even with its strong growth in recent years, UMG believes streaming is still in the early stages of its global penetration,” the music company said, highlighting technological innovations in devices and formats such as voice-activated speakers and connected cars. the intersection of music with social media and games; and licensing opportunities in the digital health and fitness industries.

Vivendi benefits from its long-standing assets. The French company, which dates from the mid-19th century, will find itself with companies such as the French pay-TV group Canal Plus, the advertising company Havas and the publishing company Editis, as well as small divisions like the maker of Gameloft video games. . (On Wednesday, Vivendi reached an agreement to increase its stake in French media group Lagardère SA to 45.1% and indicated its intention to take over the entire company.)

Vivendi has owned Universal since 2000, when it bought the media assets of Canadian conglomerate Seagram Co., then controlled by the Bronfman family.

Mr. Bolloré has made his fortune over the past three decades by taking control of companies, often without paying a premium. It took Mr. Bolloré less than two years to effectively take control of Vivendi after trading in some pay-TV operations he owned for a small stake. Although his holding company remains Vivendi’s No. 1 shareholder, Mr. Bolloré was replaced on Vivendi’s board of directors by his son, Cyrille, in 2019, a year after another son, Yannick, succeeded him. to the presidency.

Mr. Bolloré’s management of Universal has further strengthened his reputation as one of the most skilled, though at times unpredictable, corporate tacticians in Europe. Since Mr. Bolloré took the reins, Vivendi has rejected Universal’s offers, while the music company was much less valued than it is today.

In 2015, Vivendi ignored calls from US hedge fund P. Schoenfeld Asset Management to sell all or part of Universal and use the funds to increase cash returns. In 2013, Vivendi rejected an $ 8.5 billion offer for Universal from Japan’s SoftBank Corp.

Internally, Universal’s management benefited from a hands-off approach, according to people familiar with the matter. Mr Bollore backed chief executive Lucian Grainge on the acquisitions and let the company’s results, which outperformed any other Vivendi unit in terms of sales and profits, speak for themselves, people said.

As streaming revenues have increased in recent years, Vivendi has repeatedly teased the idea of ​​floating all or part of Universal, arguing that the growing value of the music business is not reflected in its own stock price. . Pre-listing sales of Vivendi’s holdings in Universal added about € 10 billion to the company’s coffers.

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