KKR, China’s Tencent eye bids for music unit

L ON DON • U.S. buyout fund KKR and China’s Tencent Music Entertainment Group are exploring rival bids for up to half of Vivendi’s iconic Universal Music division, a deal potentially worth up to 20 billion euros (US$23 billion), sources told Reuters.

French tycoon Vincent Bollore, who controls Vivendi with a 25 per cent stake, is in the process of selecting banks to oversee a partial sale of Universal Music Group (UMG), two sources familiar with matter said.

Sell-side banks are expected to be appointed in March, with a process likely to kick off in the second quarter, they said.

But informal discussions with potential bidders are underway as banks are trying to gauge appetite for the unit.

UMG is the world’s biggest music label ahead of Sony Music Entertainment and Warner Music, and is home to artists like Lady Gaga, Taylor Swift, Drake and Kendrick Lamar.

Vivendi, KKR and Tencent declined to comment.

Vivendi shares were the top gainers on France’s benchmark CAC index on Thursday, up 3.4 per cent at 1019 GMT, after Reuters first reported KKR and Tencent’s interest.

Analysts have expressed different views on UMG’S valuation.

Jpmorgan’s media analyst Daniel Kerven recently described the business as “a unique asset — undermonetized, must-have global content that is strategic to the tech giants and can’t be replicated.” He pegged UMG’S fair value at 44 billion euros.

Vivendi’s boss Arnaud de Puyfontaine said in 2017 that the unit could be worth more than US$40 billion.

At the time, Vivendi was exploring a possible stock market listing, a plan later shelved amid challenges in eking out big profits in the sector, with many customers still unwilling to pay much for songs they can hear free on the radio, in music blogs or on free apps.

Universal will generate roughly 1.5 billion euros of free cash flow excluding interest payments in 2023, Deutsche Bank forecast.

Tencent Music Entertainment Group, a subsidiary of China’s biggest gaming and social media firm Tencent Holdings Ltd., has an existing licensing agreement with Universal and wants to strengthen its collaboration with a partial acquisition, the sources said, cautioning that no deal was certain.

But industry bidders may find it hard to negotiate a joint venture deal with Bollore as they would not be able to secure a majority stake and have a meaningful say on UMG’S strategy going forward, the sources said.

Bollore wants to stay in the driving seat, they added.

Some private equity funds including U.s.-based KKR are willing to enter an equity partnership with Bollore and help fund UMG’S international expansion, even if they won’t be able to take full control, the sources said.