UMG IPO proposal dropped, Vivendi to sell 50% stake

UMG IPO proposal dropped, Vivendi to sell 50% stake

The Universal Music Group IPO is off. Despite the buzz surrounding a potential public offering that could have capitalised on the streaming boom, parent company Vivendi has now ruled out such a move.

The announcement was made in the 2018 half year earnings report by Vivendi. The company, which was always considering various options, will instead seek one or more strategic partners for a sale of up to 50% of UMG’s share capital.

Following the decision by the supervisory board, the UMG transaction could be launched in Q3 or Q4 and be completed within 18 months. Vivendi will establish a floor price for entry and work with its banks to help identify strategic partners.

During the earnings call, Vivendi CEO Arnaud de Puyfontaine said: “We will only choose investors who are compatible with Universal Music Group’s current strategy.”

He added that any partners would be selected on the basis that they enable Universal Music to "continue accelerating its growth".

While there was a lot of expectation about a publicly listed UMG with a capitalisation potentially bigger than its parent, in the end the elaborate structure of the major’s global operations made an IPO too complicated to pursue.

Nevertheless, Vivendi should be able to set a premium price for the major, which continues to experience impressive growth under the leadership of Sir Lucian Grainge. The latest results follow record sales for 2017.

De Puyfontaine said equity sale proceeds would potentially go towards a "significant share repurchase and reduction of share capital".

De Puyfontaine said UMG’s “dynamic growth” in the first six months was driven by streaming revenue.

Universal Music Group’s revenues totaled €2.63 billion (£2.34bn), up 6.8% at constant currency compared to the first half of 2017 (but down 1.4% on an actual basis).

Recorded music revenues grew by 7.4% at constant currency to €2.12bn (£1.89bn). Of course, streaming was the star performer: revenues of €1.187bn (£1.058bn) in streaming and subscription revenue represented a 34.3% increase on a year earlier.

CFO Hervé Philippe credited the success of the company’s artists, major deals including the partnership with Facebook and “growing penetration of streaming services”.

"It's fair to say the Facebook deal contributed to our streaming growth in H1," said Philippe. He also welcomed the "meaningful" entry of YouTube into the subscription space, though said it was still "very early days".

The increase of streaming at UMG in the last four years is stark: streaming and subscriptions now account for 56% of recorded music revenues compared to 17% in 2014. Physical now accounts for 17%, while other digital sales stand at 11%.

Vivendi has revalued its Spotify holding for the first six months of the year at €456 million (£406.65m). The company previously indicated UMG has no plans to sell the stake in its "fantastic partner" like other labels.

There has been talk that UMG itself would have a valuation higher than Spotify, which is currently above $33bn, though Philippe said its own assessment was "not precise" at present.

Best sellers for the first half of 2018 included albums from Post Malone, Drake and Migos, as well as the soundtrack release from Black Panther.

Music publishing revenues grew by 11.1% at constant currency. The growth was also driven by subscription and streaming revenues, as well as better performance revenues.

Merchandising and other revenues declined by 15.7% (constant currency) due to lower touring and retail activity.

Vivendi said UMG’s new multi-faceted Rolling Stones deal “marked the beginning of a new era of expanded collaboration”.

UMG’s income from operations hit €355m (£316.4m), up 23.5% year-on-year at constant currency. EBITA amounted to €326m (£290.6m), up 23.5% at constant currency.

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