The world’s largest music company finally goes solo, though not in the usual venue.
On Saturday, Universal Music Group’s French owner Vivendi said it will spin off its music business and include it in the Netherlands later this year. He had already tackled the idea of going public with the record company that works with Lady Gaga and Taylor Swift in 2022. Strong investor appetite for music assets since the pandemic began could explain the accelerated timeline. The news sent Vivendi’s share price up a fifth on Monday.
Once the spin-off is complete, the French company led by billionaire Vincent Bolloré will continue to control one-fifth of Universal. Chinese tech giant Tencent will own 20% after recently exercising an option to increase its stake in the music giant to a valuation of 30 billion euros, equivalent to 36 billion dollars. The remaining 60% will be delivered to Vivendi investors in a special distribution.
Shareholders have been pushing for the measure as a way to unlock value in the music business for years. Vivendi’s shares have been trading at an average discount of about 10% to its sum of the parts valuation since late 2017, according to analysts at Barclays. Soon, investors will be able to expose themselves to Universal directly rather than having to buy shares in the expanding French conglomerate.
Although live concert organizers are suffering during the pandemic, streaming services have benefited as consumers spend more time listening to music. Spotify increased its monthly active users to 345 million in the fourth quarter of 2020, an increase of 27% compared to the same period last year. As a result, major record labels like Universal and Warner are getting more royalties from digital music platforms. In the third quarter, Universal’s streaming revenue increased 23%, the fastest growth it has recorded since early 2019.