French mass media conglomerate Vivendi SA has agreed to sell an initial 10% stake in Universal Music Group (UMG) -- the world's largest music label -- to a consortium led by Tencent Holdings Ltd., the world's largest gaming company and one of the world's largest social media companies. The deal isn't going over well with Vivendi shareholders, however.
On Tuesday, Vivendi said it had finalized the sale of an initial 10% of UMG to the Tencent consortium, which also has the option to buy up to 10% more by January 2021 on the same price basis. The initial deal is expected to cost the consortium some $3.36 billion.
UMG was Vivendi's main third-quarter sales growth driver, with revenues rising nearly 16% to $2.0 billion (€1.8 billion). In November, Tencent Music Entertainment Group reported better-than-expected third-quarter revenue. The group develops music streaming services for the Chinese market.
It remains unclear how Vivendi will use the money it will earn from the deal. Neither is it known how the deal "will increase value for existing shareholders now potentially left with cash in their pocket but a smaller stake in a growing cash-generating company."
Tencent did not disclose details about the consortium but Vivendi said the consortium members consist of "global financial investors." Among the known consortium members are GIC Private Ltd. (a Singapore sovereign wealth fund with assets of $440 billion) and the Qatar Investment Authority (QIA), a sovereign wealth fund with assets under management of $335 billion.
Tencent and Vivendi started negotiations to sell 10% of Vivendi's stake in UMG to Tencent last August. Analysts said the deal allows Vivendi and the Tencent consortium to expand in a recovering global music market. The deal will give Tencent more access to U.S. artists while UMG can make headway into the lucrative Asian market, including popular "K-Pop" Korean pop stars.
The music industry renaissance is being driven by growing subscription and ad-based music streaming services. Last April, the non-profit International Federation of the Phonographic Industry (IFPI) said global recorded music revenues rose 9.7% in 2019 from 2018. Based in London, IFPI is the organization that represents the interests of the recording industry worldwide.
Analysts said the deal should boost morale among Chinese deal-makers. China's outbound mergers and acquisitions (M&A) activity has plummeted to a 10-year low amid trade tensions between the United States and China, according to Refinitiv.
