For Sale: As Much As Half of Universal -- WSJ

By Nick Kostov in Paris and Anne Steele in Los Angeles 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 31, 2018).

Universal Music Group's parent will try to sell up to 50% of the world's biggest music company in an attempt to cash in on a resurgent recording industry.

Vivendi SA said it would look for one or more strategic buyers for the Universal stake. The French media conglomerate said it would hire banks soon to assist in the sales process it plans to kick off in the fall and aim to complete it within 18 months.

"Our goal is to determine a list of potential partners that would help us to obtain the best valuation for Universal while accelerating its growth," Vivendi Chief Executive Arnaud de Puyfontaine said.

The move is a stark turnaround for Vivendi, which three years ago rebuffed an activist investor's call to sell some or all of Universal and use the funds to boost cash returns. At the time, Vivendi placated U.S. hedge fund P. Schoenfeld Asset Management LP by boosting its dividend. It also turned down an $8.5 billion offer from SoftBank Corp. for Universal in 2013.

Mr. de Puyfontaine last year suggested the company could float a minority stake in Universal. The company Monday said it had scrapped plans for the initial public offering, saying it was proving too complex.

Universal Music has been a bright spot for Vivendi. It has benefitted from subscription-based streaming services like Spotify Technology SA and Apple Inc.'s Apple Music, which have emerged as revenue growth drivers for the once-beleaguered music industry. Their growth is outpacing declines in physical music sales and digital downloads.

Spotify, which sold shares to the public via direct listing in April, has rekindled investor interest in the music business. Even though it has never reported an annual profit, the listing valued the company at $26.54 billion. Universal, meanwhile, reported a 13.4% operating margin last year.

Universal and its rivals -- Warner Music Group Corp. and Sony Corp.'s Sony Music Entertainment -- rake in royalty payments whenever listeners access their songs through the streaming services.

In 2017, the industry's global revenue from recorded music grew by 8.1%, to $17.3 billion, according to the International Federation of the Phonographic Industry. That was the third consecutive year of growth following 15 years of declining revenue amid plummeting physical and digital format sales.

The rise was almost entirely due to a 41% surge in streaming revenue -- which now amounts to the single largest sales source for the industry -- thanks to 176 million users of paid services like Spotify.

While revenue for 2017 was still just 68% of the market's peak in 1999, industry watchers say the upside for streaming could be much larger with mobile-phone penetration in developing markets and as more people become familiar with the service.

Universal's performance in the first half was "very good," Vivendi Chief Financial Officer Hervé Philippe said on a call with analysts, adding that he is "confident for the rest of the year" despite uncertainty over the level of new releases and CD sales.

Universal is Vivendi's biggest unit, and accounted for more than half of the company's core earnings in the first half. Its second-biggest unit, French pay-TV group Canal Plus, has been struggling from competition for sports rights and online video services.

Universal is the largest music company in the world by revenue and market share, and alone it took in nearly 30% of all music-industry revenue in 2017, according to MIDiA Research. Last year, Goldman Sachs boosted Universal Music's valuation 16% to $23.5 billion.

Mr. Philippe said Vivendi hasn't decided on the size of the stake to be sold or the floor price for a deal. Vivendi would use the proceeds from the sale to make a "significant" share repurchase, he said, or for bolt-on acquisitions.

(END) Dow Jones Newswires

July 31, 2018 02:47 ET (06:47 GMT)

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