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Class Editori News

Tencent joins Universal Music Group

August 07, 2019


Abstract : Vivendi has started a preliminary negotiation with the Chinese internet giant to sell a 10% stake for a business value of 30 billion euros. Tencent will have an additional purchase option for a 10% share at the same price, less than the market expected (up to 40 billion).

MILAN, Aug 6 (Class Editori) -- Tencent will join Universal Music Group (Umg). Vivendi has started a preliminary negotiation with the Chinese internet giant, Tencent Holdings, for a strategic investment in Universal Music Group. The French company active in the field of media and communications has pointed out that the talks concern the sale of a 10% stake in Umg's share capital to a business value of 30 billion euros.

Tencent will have an additional purchase option for an additional 10% share at the same price and under the same conditions. "Vivendi wishes to explore enhanced cooperation that could help Umg seize the growth opportunities offered by digitization and opening up to new markets," said the French media group, which aims to create value for itself and for Tencent through this partnership.

Initially, in July last year, Vivendi announced that it was considering transferring up to 50% of Umg, but had ruled out a public offer. At the time, the company had predicted that the operation would be launched in autumn and will be completed within 18 months. Tencent explained that the sale of a holding in Universal Music Group would help it to raise funds for a buyback or any acquisitions.

The transaction is subject to due diligence and Vivendi intends to continue the process of selling other minority stakes of Universal Music Group to other potential partners. A move that appeals to the market. On the Paris stock exchange the title of the French group headed by Vincent Bolloré marks an increase of 6.96% to 25.65 euros after reaching an intraday high in the early stages at 26.15 euros, while the Cac40 index rises of 0.71%.

"The Vivendì talks with Tencent for the sale of 10% in Universal Music Group are well received by the market, even if the initial participation is lower than expected and the implicit evaluation of 30 billion euros of Umg below the high end of the range," commented the analysts of Citi.

In fact, "although there is no doubt that the implicit equity value is higher than that currently implicit in the market price, around 25 billion euros, it is also below the high end of the range," set by the most optimistic among 30 and 40 billion euros. "This suggests only 3 billion euros of potential buybacks compared to expectations of over 10 billion euros," Citi experts have estimated.

Having said that, from Vivendi's point of view "this is a fantastic deal, even if the strategic collaboration does not produce any significant benefit," added the analysts. And as for Tencent, "having a stake in one of the three great music labels will offer strategic insights into how the industry could develop from the point of view of the important upstream business."

(Source:Class Editori)

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Keyword: Tencent Universal Music Group

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