After delaying the sale of Universal Music Group, Vivendi is now auctioning off a small chunk of the major label to Tencent.
Vivendi SA’s on-again, off-again sale process of Universal Music Group is apparently back on. And with it, the beginnings of an entirely different sales strategy.
According to confirmations from both Vivendi and Universal Music Group early this (Tuesday) morning, Chinese internet and media giant Tencent Holdings is poised to acquire a 10% stake in the mega-label. The deal would value UMG at roughly €30 billion ($33 billion) overall, with Tencent paying a €3 billion price tag if the deal is consummated.
According to preliminary deal terms further confirmed, Tencent would also carry an option to purchase an additional 10% share, most likely in 2020. Suddenly, one-fifth of Universal Music Group is potentially sold.
That probably sounds a little unsettling to UMG executives, artists, and other stakeholders — though the smaller share appears to solve Vivendi’s preoccupation with controlling its crown jewel label. Earlier this year, potential buyers reportedly scoffed at lopsided deal terms that would give Vivendi — roughly speaking — half ownership over Universal Music but full control over decisions and strategy.
In what appears to be a refreshed approach, Vivendi may be doling out smaller chunks to guarantee its broader control over the label. That doesn’t eliminate the distinct possibility of having activist, highly-engaged stakeholders, though it does minimize the contractual control of prospective buyers.
Expectedly, Vivendi has touted the upsides to a having an outside, sizable stakeholder like Tencent.
Although the deal is not yet confirmed or completed, the French media giant did offer the following statement:
“Together with Tencent, Vivendi hopes to improve the promotion of UMG’s artists, with whom UMG has created the greatest catalog of recordings and songs ever, as well as identify and promote new talents in new markets. A partnership could create value for both Tencent and UMG.”
For employees at Universal Music Group, the sudden news of the deal is likely unsettling. After all, a major transaction like this one could introduce a range of changes ahead, especially if Tencent assumes a greater ownership share in 2020. Of course, at this stage, everything is speculative given that Tencent’s acquisition has yet to be confirmed.
Also offering a statement was Universal Music Group chairman and CEO Lucian Grainge, who has been under fire — literally speaking — for most of this year. The quick email was likely designed to calm any rattled nerves in the ranks, and guide the troops through the early stages of the purchase.
Dear Colleagues,
Today, Vivendi has announced that they have entered into preliminary negotiations with Tencent Holdings for an investment of 10% of UMG’s share capital. This is an exciting development for both Vivendi and UMG and affirms once again just how much our strategy and hard work are succeeding.
As Vivendi shared last week with its investors, we continue to deliver remarkable, record-setting results. Our success is driven by placing our recording artists and songwriters at the center of everything we do, and providing them with the industry’s best creative and commercial resources on a global basis.
Obviously, we all remain part of the Vivendi family — today’s announcement is about a minority investment by Tencent. And I can assure you that Vivendi’s Supervisory and Management Boards, as well as the Bolloré family, continue to be steadfast supporters of our strategy, our work, and our teams. It goes without saying that our commitment to recording artists and songwriters will continue unchanged.
Clearly, the possibilities to accelerate and broaden our strategy are exciting. But for now, it’s critical that we remain focused on our important work at hand.
Thank you once again for all of your incredible achievements. As validated by this announcement, our results to date have been historic. As we move forward, we will continue to embrace change and disrupt the traditional business, as we build a bright future for ourselves, our artists and our investors.
Lucian
In terms of overall valuation, $30 billion sounds lofty but not extreme — especially compared to some estimates by analysts. But Vivendi’s negotiations with Tencent will be critical in setting the template for further deals.
More as this develops.