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New Vivendi band member requires artistic vision


By Liam Proud

(The author is a Breakingviews columnist.)

LONDON, Feb 14 ( Breakingviews) - Vivendi, the French media conglomerate, is about to post an open audition for new band members. The group conducted by billionaire Vincent Bolloré is looking for one or more "strategic partners" to buy up to half of Universal Music Group, home to artists from Ariana Grande to Lil Yachty to Zedd. In addition to buckets of cash, successful candidates better have a healthy artistic imagination.

Bolloré, who owns almost 30 percent of Vivendi, wants to unlock value in his sprawling holding through a partial sale. His number two, Arnaud de Puyfontaine, has said the label could be worth $40 billion, or 35 billion euros, which is one-quarter above the enterprise value for all of Vivendi. Selling half of Universal at that price would net Bolloré almost 18 billion euros for share buybacks and acquisitions.

It's less clear that budding collaborators would cede to Vivendi's terms, however. Universal will generate roughly 1.5 billion euros of free cash flow excluding interest payments in 2023, Deutsche Bank forecasts. At the top price, that implies a buyer's annual cash yield of just 4 percent. Slash the Universal asking price to 25 billion euros and the return is still just 6 percent, potentially ruling out private equity funds. They'd need a higher return to compensate for the risks: artists like Taylor Swift and streaming app Spotify are pushing to reduce labels' share of industry profits, with some success.

Auditionees therefore need a creative industrial vision transcending short-term financial gain. That favours music distributors like China'sTencent, Apple or Liberty Media, the owner of internet radio-stations Sirius XM and Pandora. Spotify probably lacks the financial firepower.

Those enterprises, who hand a chunk of revenue straight to rightsholders, could use a stake in Universal to hedge exposure to rising music costs. Universal, meanwhile, could use their platforms to bolster its own artists and increase its dominance. That might rile rival labels and even antitrust regulators. But such strategic harmony seems like the only way to justify a high-octave asking price.

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- Vivendi will post its 2018 full-year results after Paris markets close on Feb. 14.

- The French media conglomerate said in November that it would select between five and seven banks to help it find "one or more strategic partners" for Universal Music Group.

- The cash proceeds from a sale of up to 50 percent of the music label will be used for a "significant share repurchase program through a tender offer and for potential acquisitions".

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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