Vivendi Is Selling 50% of Universal Music Group — But Who’s Buying?

Universal Music Group HQ, Santa Monica
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Universal Music Group HQ, Santa Monica
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Universal Music Group HQ, Santa Monica

The biggest label in the world is for sale — or at least half of it is.

In case your Monday was getting lackluster, here’s a bombshell to spice things up.  French media conglomerate Vivendi is now planning to sell 50% of Universal Music Group, and ditching its earlier idea of an IPO.

The news was buried in a Vivendi earnings update for the first half of this year, under a sub-section titled ‘future evolution’.  And that ‘evolution’ doesn’t appear gradual or slow: according to the report, Vivendi is already lining up banks to help it identify a ‘strategic partner,’ with an aim to divest in the next 18 months.

Of course, that puts so many possibilities into play, including a strategic buyout from the likes of Spotify, Apple Music, or other non-labels.  That would theoretically ease the regulatory climate, which is typically unpredictable and tough, especially in the EU.

For platforms like Spotify, whose financials are dragged by heavy licensing costs, a part-ownership of UMG could be attractive.   And in this frothy environment, it’s not hard to imagine a price-defying bidding war involving the likes of Spotify, Apple, and Amazon, all of whom would enjoy serious strategic upside from this acquisition.

And it should be noted that UMG still holds a substantial stake in Spotify, which introduces a juicy wildcard into this deck.  Just make sure the popcorn’s ready.

For Wall Street types, the dismissal of an IPO is a bit of a downer.

But it looks like Vivendi CEO Arnaud de Puyfontaine isn’t being lured by the frothy public markets.  The whole thing was dismissed as overly ‘complex’.

“Our goal is to determine a list of potential partners that would help us to obtain the best valuation for Universal while accelerating its growth,” Vivendi Chief Executive Arnaud de Puyfontaine flatly stated.

The UMG mega-label includes a lengthy list of storied labels, including Capitol Music Group, Republic Records, Island Records, Def Jam, Interscope Geffen A&M, UMG Nashville and Universal Music Latin, among many others.  In terms of artists, UMG is steamrolling forward this year with record-crushing artists like Drake and Post Malone.

On the publishing side, UMG also encompasses the mighty Universal Music Publishing Group, though it’s not clear how that gem will be packaged into an upcoming deal.

The decision to sell comes at a high-growth juncture, potentially spiking the acquisition price.

In its financial disclosure, Vivendi indicated that UMG’s recorded music revenues jumped by 7.4 percent during the first half, with a monstrous 34.3 percent surge in streaming revenues.  Of course, physical assets are taking, with a 19.1 percent drop compared the H1 2017.

Download sales were also dreary, with a 26.5 percent plunge in just one year.

Overall revenues at UMG moved to €2.628 billion ($3.08 billion), an uptick of 6.8 percent at constant currency over the first half of last year.

Earlier, Vivendi declined to sell.

But that was a long time ago.  Back in 2013, a rumored $8.5 billion offer from SoftBank Corp. was turned down, though the past five years have witnessed a huge run-up in value.

Indeed, it’s impossible to peg that as a reference point in the current climate.  In 2013, streaming was hardly the surging success story of today, and buyers are obviously putting huge premiums of platforms like Spotify.  Just recently, de Puyfontaine said the value of UMG is bigger than Spotify’s — at least according to the back of his envelope.

And what about plunging CDs and iTunes downloads?

The quick answer is that streaming will cover the downfall.  But sinking CDs and downloads are proving a bigger drag than many realize.  Earlier, Sony Music tempered future earnings expectations despite surging streams, citing softer physical sales.

Now, Vivendi is doing the same thing: during the H1 call, Vivendi Chief Financial Officer Hervé Philippe said he was “confident for the rest of the year,” but acknowledged the precipitous CD sales drops.


More as this develops.