The French media giant said it would sell half of UMG, whose artists include Lady Gaga and Drake, to “one or more strategic partners, in order to extract the highest value” from the subsidiary. “An IPO was ruled out due to its complexity,” Vivendi said in a statement accompanying the release of its half-yearly results.
Last August, Goldman Sachs valued UMG at $23.5 billion (roughly three times what it was worth in 2013), ahead of Sony Music, which it valued around $20.1 billion. UMG and Sony are the music industry’s two largest major label groups.
UMG has been bolstering Vivendi’s financial results for the last several years. During the first half of 2018, UMG’s income from operations, which rose by 23.5% to reach €355 million, accounted for nearly 70% of all of Vivendi’s income. UMG’s revenues were up 6.8% to €2.6 billion, and streaming revenues also skyrocketed by 34.3% during the first half of 2018.
UMG’s sale process will likely start this fall and could be completed within the next 18 months. Vivendi will be working with banks to help identify strategic partners and will set up a “floor price for the entry of partners into UMG’s share capital,” the company said in its statement.
Earlier this year, Vivendi was preparing to potentially list UMG on the stock market, according to the Financial Times and Reuters, which quoted Vivendi CEO Arnaud de Puyfontaine as saying that the company had started examining “the benefits of a potential listing of UMG to the supervisory board.”
Vivendi has rejected previous bids to buy UMG, notably one from Japanese phone carrier SoftBank for a reported $8.5 billion, in 2013.
Vivendi is now under the chairmanship of Yannick Bollore, the son of former chairman Vincent Bollore. On Monday, the company reported half-yearly revenues of €6.46 billion, a year-on-year increase of 18.3%, from 2017, which includes the the consolidation of advertising unit Havas since last July. Aside from that, the revenue increase was boosted by the growth of UMG and Canal Plus Group .
Vivendi also realized a capital gain of €1.2 billion on the sale in March of its 27% stake in video game maker Ubisoft. But the company revealed a €512 million writedown on its shares in Telecom Italia. Vivendi is Telecom Italia’s single largest shareholder, with a 24% stake, but it lost control of the telco’s board in May after a bitter fight with a U.S. hedge fund. The writedown takes into the account “the execution risks” associated with the new board’s strategy.
Still, the Ubisoft sale, plus a sale of half of UMG, would bestow a significant windfall on Vivendi, although it remains to be seen how the company intends to make use of it.