Is Vivendi Reconsidering Selling Universal Music Group Stake?

Strong earnings back up insiders' theories that UMG's French parent company may simply be kicking the tires.

Sir Lucian Grainge, Chairman & CEO of Universal Music Group, speaks at Sir Lucian Grainge's 2019 Artist Showcase Presented by Citi on in Los AngelesSir Lucian Grainge's 2019 Artist Showcase Presented By Citi, Los Angeles, USA - 09 Feb 2019
John Salangsang/Invision/AP/Shut

Here’s one truth among a slew of rumors: Vivendi doesn’t need to sell Universal Music Group. Led by chairman Lucian Grainge, the world’s biggest music company, which Thursday reported that its revenues were up nearly 20% to $3.7 billion during the first six months of 2019, is having a very good year. It holds a 20-point lead in market share over its next biggest competitor. It signed Taylor Swift and broke Billie Eilish. And it’s only offering a minority stake in UMG — less than 50% — without giving up an inch of control.

So why all the hubbub about an imminent announcement that banks are ready to shop UMG in earnest? Sources tell Variety that much of the effort could be for show, with the real motive of seeking out a valuation — will it near $40 billion, or tread closer to $30 billion? — and an artificial floor on share price.

Indeed, Vivendi has nothing to lose by feeling out the market and kicking the tires. If nothing else, Vivendi chairman Yannick Bollore is sending a message to potential bidders and bankers. Still, the pool of investors who can afford — or would want — to pay that much for a passive stake is small.

“The idea still seems to be to announce a deal within the next six months, but Vivendi’s high expectations in terms of valuation might jeopardize this objective,” Jean-Baptiste Sergeant, a senior financial analyst at MainFirst, said in a report following the investors’ July 25 call. Sergeant said he believed nevertheless that Vivendi could find a buyer willing to splurge, given the outstanding results that UMG has garnered.

Vivendi has hired the Parisian law firm Cabinet Bompoint to advise the company in finding potential buyers, Variety has learned. Vivendi previously worked with Cabinet Bompoint on the sale of its 27% stake in video game company Ubisoft for about $2.3 billion. The juicy deal allowed Vivendi to make a capital gain of $1.4 billion.

Another insider suggests that Vivendi welcomes the distraction of a potential UMG sale, and may have alerted key European outlets in advance that some mention on engaging banks was expected on the investors call (specific wording, according to MBW: “several contacts have already been established with potential strategic partners”) in order to steer attention away from a current crisis involving Canal Plus Group. The French content group recently announced that it was going to trim the workforce in France by about 20%.

Some sources in the finance world doubt that Vivendi will go on with the sale at all. “What if they were not selling? And this money, what is it for?” asked a skeptical insider, who also noted that Vivendi had not mentioned any potential targets of future investment.