Universal Music eyeing industry bidder as buyout firms baulk: sources

[LOS ANGELES] Vivendi SA is targeting strategic buyers for a stake in Universal Music Group as some private equity investors baulk at the high price and slow pace of the deal, according to people familiar with the matter.

The French company has floated a partial sale or an initial public offering of Universal for years and said in July it would try to sell as much as 50 per cent of the world's largest record group. Yet Vivendi still hasn't formally hired advisers after multiple pitches, and several financial investors have lost interest, said the people, who asked not to be identified discussing private deliberations.

Vivendi has held talks with companies including Tencent Holdings Ltd about a minority investment, which could help Universal Music expand internationally including in China, said two of the people. But a sale to the Chinese could also raise the ire of officials in the US, the biggest music market, amid trade tensions, one of them said.

Some suitors have also been dismayed by the minimum value of 25 billion euros (S$38.5 billion) to 30 billion euros that Vivendi is seeking for the business, the people said. Analysts' estimates for Universal vary from US$20 billion to US$50 billion. While the company only wants to sell a minority stake so far, some potential advisers have floated the idea of a majority stake to gauge interest and test valuations, they said.

Universal, home to artists Taylor Swift, Kanye West and Drake, has attracted private equity firms, sovereign wealth funds, and media and technology companies looking to grab a piece of the resurgent industry. But some of the initial enthusiasm has turned to frustration as the preparation creeps along, the people said.

Without haste

When Vivendi outlined plans for the sale in July, it said the process could be completed within 18 months. By November, Vivendi said it was holding working sessions with banks, then in February predicted a final selection in the coming weeks. In April, it said that the selection should be completed "shortly", and that the process was being conducted "calmly, deliberately and without haste".

Private equity firms and sovereign wealth funds, which had engaged consultants to advise them on potential offers, have since tabled their efforts until Vivendi signals the sale will proceed, two of the people familiar with the matter said.

"When I think about the UMG deal, I think about the play Waiting for Godot, Macquarie Group Ltd analyst Giasone Salati said. "Why pre-announce the deal such a long time in advance instead of just doing so once the deal has been agreed upon? Still, maybe it helps the stock price of Vivendi."

Vivendi shares have gained 29 per cent over the past two years, valuing the company at 32 billion euros, compared with a 1.6 per cent gain for the Stoxx Europe 600 Media Index.

A spokesman for Vivendi said the sale is going according to the timing that has been set, declining to comment further. A representative for Tencent, which backs China's largest music-streaming service Tencent Music Entertainment, declined to comment.

Bright spot

Universal has been the bright spot for billionaire Vincent Bollore's media conglomerate, which is struggling to find growth in its other investments, such as phone company Telecom Italia SpA. The music group has benefited from the rise of paid streaming services, which contributed to a global record label sales gain of almost a third since 2015 to US$19.1 billion.

The list of potential strategic buyers is short. Most large US technology companies, including Apple Inc, Amazon.com Inc and Alphabet Inc, have little to no history of buying passive, minority stakes in companies.

Liberty Media Corp, which owns pieces of concert promoter Live Nation Entertainment Inc and satellite radio company Sirius XM Holdings Inc, is among existing media players to have expressed interest in Universal. Others cited as possible investors include Apple and Chinese technology firm Alibaba Group Holding Ltd. Reuters reported in February that US buyout firm KKR & Co and Tencent were exploring bids and that banks were expected to be appointed in March.

BLOOMBERG