Vivendi Enters Talks With Tencent to Sell Stake In Universal Music Group

Universal Music Group logo.
Courtesy of UMG

Universal Music Group logo.

Vivendi has entered into preliminary talks with China's Tencent Holdings to sell an initial 10 per cent stake in its Universal Music Group division, the French media giant said Tuesday (Aug. 6).

The negotiations are based on a €30 billion ($33 billion) valuation for UMG, the world's biggest music company, which means Tencent’s stake would cost €3 billion. Tencent also has a one-year "call" option to buy another 10% stake on the same terms.

The proposed deal, should it come to fruition, ought to give UMG's roster of artists a cross-border advantage. "Together with Tencent, Vivendi hopes to improve the promotion of UMG’s artists, with whom UMG has created the greatest catalogue of recordings and songs ever," a statement reads, "as well as identify and promote new talents in new markets." Vivendi says it hopes the new strategic partnership "could create value for both Tencent and UMG."

Vivendi said the company plans to pursue the sale of additional minority stakes in UMG to other potential partners, which is consistent with previous announcements.

The French group's sharerprice rose by as much as 9.1 percent following the announcement.

While the sale of a stake in UMG doesn’t come out of the blue, the timing does come as a surprise.? ?Vivendi announced its intent to sell half of UMG's share capital on July 30 of last year, which coincided with management's decision to bail on plans to take the label group public.

The media giant was known to be engaged in talks with potential suitors, specifically Liberty Media and Tencent.

In an interview published six weeks ago in Bloomberg, Vivendi chairman Yannick Bolloré gave an update on moves to sell up to half of UMG by indicating that "everything's fine" and that the “process is still on track." That read like shorthand for, “it’s going well but don’t expect any action this year.”

With Tuesday's notification, the process appears to be moving faster than anticipated, though any arrangement will require regulatory approval. 

Thanks to the rise of streaming and subscription services, UMG is enjoying strong returns, with some analysts valuing the company at up to $45 billion.

First-half revenues at the music giant were up 18.4 percent, to $3.7 billion, Vivendi reported last month, contributing to a revenue spike at the entertainment conglomerate of nearly 14 percent, to $8.1 billion.