Vivendi to sell part of Universal Music

Conglomerate rules out IPO over complexity

Vivendi said it will sell up to half of Universal Music Group, cashing in on a surge in music streaming that has infused new life into the industry after years of decline.

The French media conglomerate will sell the stake to one or more “strategic partners” and has ruled out an initial public offering — long seen by analysts as a likely option — because it is too complex.

Vivendi will establish a floor price for the stake and the sale will probably go ahead “this fall,” with completion possible within the next 18 months, Vivendi said in a statement. Analysts at Liberum this month valued Universal Music at 20.6 billion euros (US$24 billion).

“We will only choose investors who are compatible with Universal Music Group’s current strategy,” chief executive officer Arnaud de Puyfontaine told analysts on a conference call. “The proceeds could be used for a significant share repurchase, reduction of capital and bolt-on acquisitions.”

The rise of illegal downloads more than a decade ago was a body blow for music companies. Their efforts to promote legal downloads stumbled, leaving them with no viable alternative to CD sales before they reluctantly embraced streaming.

Last year, online streaming services became the recording industry’s biggest revenue generator, bringing a windfall for its owners. Swedish music streaming platform Spotify Technology SA listed in April and this month Tencent Holdings Ltd. announced a plan to spin off its online music business with a listing in the U.S.

The news hit after share trading ended in Paris, where Vivendi is listed. A thinly traded proxy for the stock, American depositary receipts sold over the counter in the U.S., rose 3 per cent as of 12:35 p.m. in New York.

Vivendi said Universal Music’s streaming business performed strongly in the first half. Universal Music is the company’s biggest profit generator, representing around 45 per cent of revenue and 70 per cent of operating income last year.

It has been a rare bright spot for Vivendi and top shareholder Vincent Bollore, who has been dealt multiple setbacks this year.

Bollore lost a proxy battle for control of Telecom Italia to U.S. activist fund Elliott Management Corp. in May, after being charged with bribing African officials over port deals. His Autolib electric-car system has skidded off course with lost contracts, and Vivendi unit Canal+ lost its three-decade grip on French soccer broadcast rights from 2020.

Vivendi said it wrote 512 million euros off the value of its 24 per cent equity stake in Telecom Italia, taking account of what it called execution risks associated with the former monopoly’s industrial plan and “given Vivendi’s lower power to participate in Telecom Italia’s financial and operating policy decisions”.

Vivendi also said it was in exclusive talks to buy Editis, France’s second-largest publishing group, from Grupo Planeta. It said Editis business had an estimated enterprise value of 900 million euros. Vivendi’s secondquarter revenue was 3.35 billion euros, missing the 3.38 billion-euro average of analysts’ estimates compiled by Bloomberg.

The company said it was confident in its outlook for the second half of 2018, with Canal+ on track to meet a full-year target for earnings before interest, tax and amortization of close to 450 million euros.