Picture: REUTERS/BRYAN R SMITH
Picture: REUTERS/BRYAN R SMITH

Paris/Hong Kong — A Tencent-led consortium is taking a 10% stake in Vivendi’s Universal Music Group (UMG), valuing the music label that houses Lady Gaga and The Beatles at €30bn and giving the Chinese firm a global backstage pass.

The deal allows both companies to expand in a recovering global music market, giving Tencent — in which Naspers has a 31% stake — more access to US artists while UMG can tap into the Asian market, including big-selling K-Pop (Korean pop) stars.

After months of talks, French media conglomerate Vivendi said on Tuesday that it had finalised the sale of an initial 10% of the world’s largest music label to the Tencent consortium, which also has the option to buy up to 10% more by January 2021 on the same price basis.

Vivendi, controlled by French billionaire Vincent Bolloré, is seeking to cash in on the music industry’s revival, driven by a growing subscription and ad-based music streaming services.

The initial deal will soon be followed by a second, allowing Tencent Music Entertainment to buy a minority stake in UMG’s greater China subsidiary. Tencent did not immediately respond to a request for comment, while Vivendi did not disclose the details of the consortium beyond saying they were “global financial investors”.

Singapore’s state investment firm GIC and Qatar Investment Authority (QIA) were also involved, a source familiar with the deal told Reuters. QIA and GIC did not immediately respond to requests for comment.

Rising tempo

The International Federation of the Phonographic Industry (IFPI)  said in April that global recorded music revenues had risen 9.7% in 2019 from 2018, while Universal was Vivendi’s main third-quarter, sales growth driver, with revenues rising nearly 16% to €1.8bn.

“Universal has been enjoying increased revenues for the past five years. With the company in a strong position, it makes sense to capitalise on the valuation with a minority sale at this point in the growth cycle,” said MB Capital director Marcus Bullus, commenting on the deal.

The tie-up between Tencent and Vivendi builds on a partnership struck two years ago, allowing Tencent to license Universal’s music for distribution over its streaming platforms.

The transaction should also boost morale among Chinese deal-makers, with China-outbound mergers and acquisitions activity plunging to a 10-year low amid trade tensions between the US and China, Refinitiv data shows.

In November, Tencent Music Entertainment Group reported better-than-expected third-quarter revenue.

Although Tencent Music’s user base is nearly three times that of Spotify, which is the world’s largest music streaming service, it has comparatively fewer paying users. Spotify, in which the Tencent Holding company itself has a minority stake, had more than 100-million paid subscribers, whereas Tencent Music had about 35-million as of the third quarter.

Vivendi shares were up 0.3% at 11.23am GMT, with the final sale terms in line with earlier guidance from Vivendi.

MB Capital’s Bullus said it is unclear how Vivendi will use the cash and “how this will increase value for existing shareholders now potentially left with cash in their pocket but a smaller stake in a growing cash generating company”. 

Reuters