The Derby Begins: Three Major Suitors Prepare Their Bids for 50% of UMG

Major bidders are ready to buy up to half of Universal Music Group.  But, will they accept Vivendi’s strict demands?

Two weeks ago, Vivendi posted a great profit from its subsidiary, Universal Music Group (UMG).

Across labels, record sales, publishing, merchandising, tours, and more, the company posted €6 billion ($7.2 billion) in revenue for the full year of 2018.  This represented a 10% increase over 2017 at constant currency.

Breaking down key figures, the company’s recorded music revenue grew 9.8% to €4.8 billion ($5.5 billion).  Streaming and subscriptions accounted for the majority of this revenue, jumping 37.3% to €2.6 billion ($3.1 billion).

Vivendi also confirmed that it is working toward the sale of up to 50% of UMG.  At the start of 2019, the media conglomerate launched ‘due diligence.’  It will soon set a floor price.

Now, ahead of the long-awaited sale, multiple suitors have lined up.  And, they have deep pockets.

So, who will soon own up to half of UMG?

A new report has confirmed three potential suitors for UMG – Liberty Media, US investment firm KKR, and Tencent Music Entertainment.

The deal to purchase a vital stake in UMG could potentially be worth as much as $23 billion.  That figure remains much higher than Deutsche Bank’s overall valuation of the major music group – $33.3 billion.  Last year, Vivendi CEO Arnaud De Puyfontaine pegged UMG at $40 billion, once considered by investors a lofty figure.

The recent figure also surpasses another major investment’s firm valuation.  Last August, Goldman Sachs valued UMG at $23.5 billion.  JPMorgan Casanove analysts pegged the music group at $50 billion nearly two weeks ago.

KKR may remain the best fit for UMG.  The investment firm backed BMG prior to its sale to Bertelsmann six years ago.

According to Reuters, other bidders, including Tencent Music, may find negotiations incredibly difficult.  Vincent Bollore, who owns Vivendi with a 25% stake, reportedly won’t allow any suitor to “secure a majority stake” in the music group.  Once the transaction is finalized, he also won’t allow the highest bidder to “have a meaningful say on UMG’s strategy going forward.”

Bollore’s strict conditions may make sense.  Currently, under CEO Lucian Grainge, UMG has posted strong profits year-after-year.  For example, looking at the music group’s 2018 EBITA (earnings before interest, taxes, and amortization), UMG posted €902 million ($1.1 billion) last year.  This represents a 22.1% growth year-over-year at constant currency.

In addition, licensing revenue rose 10.7% to €804 million ($908 million).  Music publishing revenue also increased 14.5% to €941 million ($1.1 billion).

It remains to be seen who exactly will give in to Bollore’s demands and purchase up to half of UMG.