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Tencent in talks for 10% of Vivendi’s UMG

August 6, 2019

By Chris Forrester

Vivendi has confirmed that Naspers-backed Tencent is in “preliminary negotiations” to acquire a 10 per cent stake in Universal Music Group (and assuming UMG has an overall €30 billion value).

A release from Vivendi has various key statements, which investment bank Exane/BNPP says are:
– Tencent to acquire 10 per cent stake in UMG at a ‘preliminary’ €30 billion valuation on a fully diluted basis
– The valuation is subject to ‘due diligence’ and ‘finalisation of legal documentation’
– Tencent has a one year call option to acquire an additional 10 per cent at the same price and terms
– Tencent and Vivendi are also considering other areas of cooperation which could help UMG capture growth opportunities ‘offered by the digitalization and the opening of new markets.’
– Additionally the cooperation can ‘improve the promotion of UMG’s artists, with whom UMG has created the greatest catalogue of recordings and songs ever, as well as identify and promote new talents in new markets’

– Vivendi are set to pursue a sale of further minority stakes to other potential partners

The bank’s note to clients, adds: “We have argued Tencent is the most likely acquirer and value UMG at €30 billion in line with today’s outcome. We value Vivendi at €29.5 per share. We expect the VIV shares to respond positively to the enhanced ‘Sum of the parts’ value for UMG (c80 percent of Vivendi’s enterprise value), although ‘bears’ may argue the valuation is below some of the more aggressive sell side valuations – we see this as less relevant with shares at €24. The speedy timing of the transaction will be a relief after recent negative press articles.”

“We think Tencent is an ideal partner for UMG with limited regulatory risks (confirmed on H1/19 analyst call) and significant strategic upside by monetising Chinese consumers better and closer cooperation. Finally, we think the size of the stake sale is reassuring limiting Vivendi’s dilution in its best asset and constraining M&A firepower – an area of concern for the market (although more stakes could be sold).”

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