LONDON (Financial Times) -- China's Tencent is in talks with Vivendi about buying a 10 percent stake in the world's largest music company Universal Music, whose artists include The Beatles, Taylor Swift and Lana Del Rey.
Vivendi, the French conglomerate which has been exploring a sale of a stake in Universal Music since 2018, said that the deal would value its entire music business at 30 billion euros. Tencent would also acquire a call option that would give it the option of doubling its stake in a year at the same valuation.
The sale to the Chinese media group is the latest sign of a sustained recovery of the music industry, which has rebounded from a 15-year trough driven by online piracy and the collapse of the CD market. Vivendi shares surged 6 percent on the back of the deal.
The valuation proved higher than expected albeit below some expectations of a 40 billion euros deal. The stake sold was lower than expected, which could reduce the returns for Vivendi shareholders.
Citi said in a note: "On the stake, the 10 percent initial stake (and even the 20 percent total stake if the option is exercised) is probably a bit below what was expected. The group had signalled up to a 50 percent stake sale. Although Vivendi signals other partners may be found we can probably assume a 30 billion euros valuation is both a ceiling and a floor for valuation. This suggests just 3 billion euros of buyback potential initially versus expectations of (more than) 10 billion euros."
The French media conglomerate, which has shed billions of euros worth of assets in the telecoms and video games sector in the past decade, said it would continue to explore the sale of an additional minority stake in Universal to other potential investors.
Vivendi said that it expects the deal with Tencent to benefit the music company by opening up the under-exploited Chinese music market.
"Together with Tencent, Vivendi hopes to 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 hopes that this new strategic partnership could create value for both Tencent and UMG," it said.