China’s Tencent Music Entertainment Group, along with U.S. buyout fund KKR, is exploring rival bids for up to half of Vivendi’s iconic Universal Music division, a deal potentially worth up to 20 billion euros ($23 billion), sources told Reuters.
French tycoon Vincent Bollore, who controls Vivendi with a 25 percent 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 MusicVivendi, KKR and Tencent declined to comment.
JPMorgan’s media analyst Daniel Kerven recently described the business as “a unique asset – under-monetized, 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. Deutsche Bank put it at 29 billion euros, Goldman Sachs at 35 billion euros and Exane BNP Paribas at 25 billion euros.
Vivendi’s boss Arnaud de Puyfontaine said in 2017 that the unit could be worth more than $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.
One of the sources said other big buyout funds who are technology-savvy and have conducted similar investments in the TMT sector have shown interest in making a bid for UMG.
For private equity investors the deal offers a high-profile platform to tap into the music industry, which is recovering from a 15-year long downturn and has grown for the past three years.
UMG owns 4 percent of Spotify, the world’s most popular paid music streaming service, a stake that Vivendi executives have always described as a core investment, ruling out any plans to cash out.