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Universal Music Group’s Vivendi VIVHY -0.32% SE spinoff, expected on Tuesday, will deprive the French conglomerate of its most lucrative business and test the market’s appetite for music as an asset class.

The world’s biggest music company, behind stars including Taylor Swift, Drake and the Beatles, will debut on Amsterdam’s Euronext stock exchange with shares to be distributed to investors in Vivendi. The move comes after growing interest in the form of investment in the revitalized music business and the recent surge in the value of the technology to music catalogs, music-streaming companies and creators.


Analysts value Universal Music at more than €40 billion, which equates to approximately $46.9 billion, which is higher than recent estimates and the transaction indicated. In August, the company was valued at €33 billion when billionaire William Ackman bought a 10% interest through his Pershing Square Holdings Ltd hedge fund. The purchase came after Mr. Ackman scrapped ambitious plans to use his special-purpose acquisition company, or SPAC. To invest in Universal, citing the concerns of the Securities and Exchange Commission.

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Last year, the Chinese Internet Group Tencent Holdings Ltd. doubled its stake in Universal Up to 20% in a deal that had a turnover of about €30 billion.

When the shares list, the Tencent-led consortium will hold a 20% stake, and Mr. Ackman’s entities and Vivendi will each hold a 10% stake. The remainder will be distributed to each Vivendi shareholder. As a result, French investor and former Vivendi chairman Vincent Bollore will hold an 18% stake. There are no restrictions on investors that would prevent them from selling the shares when they are received.

Tencent and Mr. Ackman have expressed interest in holding Universal long-term. Vivendi said it would retain its stake for at least two years due to stay connected and for tax reasons. Whether Mr Bollore chooses to retain his stake – which would be worth around €6 billion at a valuation of €33 billion – will be closely watched by investors and analysts.

Because Mr. Bollore controls Vivendi through a 27% stake, this means that he will directly or indirectly control approximately 28% of Universal. People close to Mr Bollore said it was unclear what the tycoon would do with his stake, although they expect him to stay at it for some time.

Mr Ekman has set A fast case for music, declaring it a better streaming business than video and comparing it to the software industry. “You need food and water to live, but music comes next,” said Mr. Ackman. “If you own UMG, you own royalties on the people who listen to the music.”

In its Capital Markets Day presentation to analysts last month, Universal executives said they expect revenue to grow more than 10% this year in constant currencies, and profits to double that amount.

The target prompted Barclays to increase its valuation of the company from €38.5 billion to €41.4 billion. Analysts at JPMorgan said they believe their base case of €54 billion “will prove conservative.”

Once it goes public, analysts say, Universal Music will be the best way to participate in the market. Competitor Sony Music Entertainment is only available as a small piece from the Japanese conglomerate. Sony Group Corporation; Warner Music Group The corporation has publicly listed less than 15% of its stock and is controlled by billionaire Len Blavatnik.

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Universal’s prospectus outlines the growth prospects of the music business, in which it commands a roughly 40% market share. The more massive functions it has under its umbrella, the more Universal makes up from its licensing agreements with music-streaming services, such as Spotify Technology SA, Apple Inc. and Amazon.com Inc. Nine of the top 10 recording artists offered by. According to the International Federation of Phonographic Industry, 2020, by sales, and 10th slices are on its roster.

After years of collapse due to piracy and declining CD sales, the music industry has been on the rise since 2016, thanks to the rise of music streaming. “Even with its strong growth in recent years, UMG believes that streaming is still in the early stages of global penetration,” said the music company, adding that technology has been infused into devices and formats such as voice-controlled speakers and connected cars. Pointing out innovations. It also highlighted the intersection of music with social media and gaming, and licensing opportunities in the digital health and fitness industries.

Vivendi is cashing in on its long-prized asset. The French company, which dates to the mid-19th century, would be left with businesses that included French pay-TV conglomerate Canal Plus, ad-holding firm Havas and publishing company Editis, as well as smaller divisions such as videogame maker Gameloft. . (On Wednesday, Vivendi struck a deal to increase its stake in French media conglomerate Lagardaire S.A. to 45.1% and signaled its intention to take over the entire company.)

Vivendi has held Universal since 2000, when it purchased the media assets of Canadian conglomerate Seagram Co., then controlled by the Bronfman family.

Mr. Bollore has made a fortune over the past three decades by taking control of businesses, often without paying a premium. It took less than two years for Mr. Bollore to effectively control Vivendi after exchanging some pay-TV operations for a small stake. Although his holding company remains Vivendi’s No. 1 shareholder, Mr. Bollore was replaced on Vivendi’s board by his son, Cyril, in 2019, a year after another son Yannick succeeded him as chairman.

Universal’s management by Mr. Bollore has further cemented their reputation as one of Europe’s more efficient, if sometimes unpredictable, corporate strategies. Ever since Mr. Bollore took over, Vivendi has turned down offers from Universal, when the music company was valued much less than it is today.

In 2015, Vivendi acquired US hedge fund P. Schoenfeld ignored Asset Management’s call to sell some or all of Universal and use the funds to boost cash returns. In 2013, Vivendi declined an $8.5 billion offer for Universal from Japan’s SoftBank Corp.

Internally, Universal Management has enjoyed a pragmatic approach, according to people familiar with the matter. Mr. Bollore backed Chief Executive Lucian Grainge on the acquisition, and the company’s results, which have outperformed any other Vivendi unit in terms of sales and profits, speak for themselves, the people said.

As streaming revenue has increased in recent years, Vivendi has repeatedly teased the idea of ​​floating all or part of Universal, arguing that the growing value of the music business is not reflected in its own share price. Is. The sale of Vivendi’s stake in Universal prior to the listing added approximately €10 billion to the company’s coffers.