LONDON (Reuters Breakingviews) - Never doubt Vincent Bolloré. That’s one lesson from Tuesday’s announcement that Vivendi, which is controlled by the French tycoon, may sell 10% of Universal Music Group to China’s Tencent Holdings at a price that values the label at 30 billion euros. The second lesson is less heartening: more asset sales will be required to erase Vivendi’s persistent conglomerate discount.
The 67-year-old billionaire, who controls Vivendi with a roughly 28% economic stake, raised the prospect of partially selling Universal, home to Taylor Swift and Drake, in May 2018. Fifteen months later, the Paris-based company has finally entered “preliminary negotiations” with gaming behemoth Tencent for a 10% sale. The Chinese company also gets the option of buying another 10% at the same price within a year.
The benefits for Tencent are unclear. It would effectively pay 3 billion euros - or a quarter of this year’s free cash flow using Refinitiv estimates - for a stake with no control over Universal. They are more evident for Vivendi.
A sale would reassure investors who had feared Bolloré would fail to secure a deal this year. Vivendi shares rose 7% on Tuesday, more than reversing the losses they had suffered over the last three months. And partnering with the Chinese group, which owns $23 billion streaming service Tencent Music Entertainment, helps Universal tap into the growth of paid music in the world’s most populous country.
The 30 billion euro price tag also vindicates Bolloré’s contention that the stock market has undervalued Vivendi’s crown jewel. Universal’s sales in the first half of 2019 rose 19% from a year earlier, to 3.3 billion euros, as it captured the biggest chunk of royalties paid out by streaming services Spotify and Apple Music. Assuming that growth rate continues, Universal’s 2019 sales would surpass 7 billion euros. The implied revenue multiple of Tencent’s purchase, just over 4 times, is higher than tech darling Spotify.
The impressive valuation highlights Bolloré’s main problem. After Tuesday’s share price rise, Vivendi is worth about 35 billion euros including debt. If the Universal price is right, Bolloré’s other assets including Canal+, ad group Havas and a string of listed equity stakes are almost worthless. Further sales could help ease that discount. It’s an incentive for Bolloré to move more quickly towards his next deal.
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