The biggest music company in the world is finally going on a solo, although not in the usual place.
On Saturday, French owner of Universal Music Group, Vivendi VIVHY 0.56%
he said he will break up his music business and list it in the Netherlands later this year. The idea had already been raised to bring the record label that works with Lady Gaga and Taylor Swift to the public in 2022. Investors’ strong appetite for musical assets since the beginning of the pandemic may explain the accelerated schedule. The news caused Vivendi’s stock price to rise a fifth on Monday.
When the split is completed, the French company led by billionaire Vincent Bolloré will still own a fifth of Universal. Chinese technology giant Tencent will have a 20% stake after recently exercising an option to increase its stake in the music giant at a valuation of € 30 billion – equivalent to $ 36 billion. The remaining 60% will be delivered to Vivendi’s investors in a special distribution.
Shareholders have been pushing for this change as a way to unlock value in the music market for years. Vivendi’s shares have been traded at an average discount of around 10% on its valuation of the sum of parts since the end of 2017, according to analysts at Barclays. Soon, investors will be able to gain direct exposure to Universal, rather than having to buy shares in the vast French conglomerate.
Although live concert organizers are suffering from the pandemic, streaming services have benefited as consumers spend more time listening to music. Spotify increased its monthly active users to 345 million in the fourth quarter of 2020, an increase of 27% compared to the same period last year. As a result, major labels like Universal and Warner are raising more royalties from digital music platforms. In the third quarter, Universal’s streaming revenue increased 23%, the fastest growth it has recorded since early 2019.
There is still not much information on Universal’s valuation, except that it will be at least € 30 billion. Demand is expected to be strong, however: since it was listed last summer, the smaller rival, Warner Music Groupin
the market value increased by 27% to $ 19 billion. Universal may deserve to negotiate a premium for Warner because of its larger size and higher profit margins.
But the location can be a drag. Unlike Spotify and Warner Music, rivals that chose to list in New York, Universal opted for Amsterdam. Vivendi said the Netherlands won because “it has been one of UMG’s historic houses”, although the company is based in the United States. Another attraction may be that Dutch corporate governance laws offer strong protections against acquisitions.
This will not be enough to dampen investor enthusiasm, but it is worth looking at the reasons for a debut in Amsterdam than in New York.
Write to Carol Ryan at [email protected]
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