VIV Vivendi SE

By Anne Steele 

Vivendi SA teased an initial public offering of its Universal Music Group subsidiary, seeking to cash in on a resurgent music business.

The one-line disclosure was included in Vivendi's quarterly earnings report Thursday, more than 18 months after the French media conglomerate said it would seek buyers for up to 50% of Universal.

Tencent Holdings Ltd. at the end of December struck a EUR3 billion ($3.25 billion) deal for a 10% stake in Universal, valuing the world's largest music company at $33.4 billion. The deal gives Tencent the option to buy another 10% by next January. Vivendi said at the time it announced the Tencent deal that it was in talks with other investors about selling an additional minority stake at a valuation that "would at least be identical."

Vivendi said Thursday those negotiations are ongoing and that an IPO is planned for early 2023 at the latest. An IPO would allow current and potential investors to cash out as the value of music assets has skyrocketed.

The music industry, decimated starting in 2001 by online piracy and the collapse of CD sales, has been on a tear for four years, with revenue from subscriptions to streaming services like those offered by Spotify Technology SA and Apple Inc. turning around the fortunes of record companies. Global recorded music revenue grew 10% to $19.1 billion in 2018, according to the International Federation of the Phonographic Industry, with streaming revenue accounting for almost half of overall revenue.

In the U.S., the world's largest music market, the growth has been even more pronounced. Revenue from recorded music in the U.S. rose 18% to $5.4 billion in the first half of 2019, according to the Recording Industry Association of America, with streaming representing 80% of the industry's total revenue.

Universal's top line rose 14% to EUR7.16 billion in 2019, thanks to a 22% lift in streaming revenue to EUR3.33 billion, according to Vivendi's statement on Thursday. Overall recorded music revenue climbed 12% year-over-year, with even physical sales -- on the decline industry wide for over a decade -- up 3%.

Vivendi's announcement Thursday is the latest in a series of flirtations with possible transactions involving its music arm.

In 2017 Vivendi Chief Executive Arnaud de Puyfontaine told The Wall Street Journal Vivendi could float a minority stake in Universal -- at the time a departure from its longstanding opposition to selling any part of the company. Those plans were abandoned in 2018, with executives saying it was "too complex."

Vivendi had rebuffed earlier offers for Universal, when the music company was worth significantly less than it is today. Five years ago, Vivendi brushed off an activist investor's call to sell some or all of Universal and use the funds to boost cash returns. In 2013, it rejected an $8.5 billion offer for Universal from Japan's SoftBank Corp.

Last week, Access Industries Inc.'s Warner Music Group Corp., the third-largest music company behind Universal and Sony Corp.'s Sony Music Entertainment, filed documents to go public.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 13, 2020 16:09 ET (21:09 GMT)

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