The largest music company in the world is finally going solo, although not in its usual location.
Universal Music Group’s French owner Vivendi said on Saturday that it will spin-off its music business and record in the Netherlands later this year. The idea had already come to making the record label that collaborates with Lady Gaga and Taylor Swift public in 2022. Strong investor interest in music assets since the onset of the pandemic could explain the accelerated timeline. The news sent Vivendi’s price up by a fifth on Monday.
Once the spin-off is complete, the French company led by billionaire Vincent Bolloré will still own one-fifth of Universal. Chinese tech giant Tencent will own 20% after recently exercising an option to increase its stake in the music giant at a valuation of € 30 billion – equivalent to $ 36 billion. The remaining 60% will be given to Vivendi investors in a special distribution.
Shareholders have been pushing for the move for years as a way to unlock value in the music business. According to Barclays analysts, Vivendi’s stock has been trading at an average discount of about 10% from the sum-of-the-parts valuation since late 2017. Soon, investors will be able to gain direct exposure to Universal rather than having to buy shares in the sprawling French conglomerate.
While live concert organizers suffered during the pandemic, streaming services have benefited as consumers spend more time listening to music. Spotify grew its monthly active users to 345 million in the fourth quarter of 2020, up 27% from the same period a year earlier. Major record labels such as Universal and Warner thus earn more royalties from digital music platforms. Universal’s streaming revenue grew 23% in the third quarter, its fastest growth since early 2019.