Vivendi Spins Off from Universal Music Group Following $40B Investment

Vivendi Spins Off from Universal Music Group Following $40B Investment

The spin-off vote came after Vivendi sold 10% of UMG to Pershing Square Tontine Holdings Ltd (NYSE: PSTH).

Shareholders of Vivendi SE (EPA: VIV), a French media conglomerate, approved the spin-off of the iconic Universal Music Group (UMG). At the annual general shareholders’ meeting held Tuesday, 99% of shareholders owning 69% of Vivendi shares backed the proposal.

With this, the world’s largest music label will become listed on the Euronext Amsterdam by September 21. A consensus was also reached to distribute 60% of UMG’s share capital among shareholders following the public listing.

The spin-off vote came after Vivendi sold 10% of UMG to Pershing Square Tontine Holdings Ltd (NYSE: PSTH). The latter is a SPAC owned by tycoon Bill Ackman. Announced Sunday, the $4 billion deal raised the company’s valuation to €35 billion ($41.55 billion). Already, the Chinese giant tech firm Tencent Holdings has a 20% equity stake in UMG, after it doubled it last year, valuing the business at about €30 billion.

UMG is home to star artists such as Taylor Swift, Lady Gaga, and the Beatles. It holds roughly 40% market share of the domestic recorded music business, which is about 30% globally. The enterprise also generates about 75% of Vivendi’s proceeds.

Bigger Picture on Vivendi and Universal Music Group Spin-Off

Activist hedge funds such as Bluebell and Artisan Partners Asset (NYSE: APAM) have criticized Vivendi’s spin-out. The two claim that such a decision stands to benefit bigger investors, at the expense of smaller investors. Investors such as Vincent Bollore, a French billionaire businessman holding 30% voting rights at UMG, will benefit most.

About 75% of Vivendi’s shareholders voted in favor of the company’s plan to buy back and cancel up to 50% of its stock.

Controversies have also risen on Vivendi’s capital allocation after the spin-out. There is concern among some investors on the tax implications for smaller shareholders following the spin-off. Moreover, many are querying Vivendi’s decision to sell small portions of its business rather than spinning off a larger share.

Nevertheless, this incarnation will make UMG the new rival to Warner Music Group (NASDAQ: WMG), which enlisted on the NASDAQ in June. Since their debut, shares have surged 15% in the past year, according to MarketWatch. The company is also the third-largest recording label, after UMG itself and Sony Music Entertainment.

The music industry’s resurgent in 2016 was attributed to the growth of streaming services such as Apple Music and Spotify. These outweighed CDs and digital downloads, whose sales had experienced an elongated 15-year decline due to rampant piracy. Currently, streaming commands 80% of US recorded music revenue which is over 60% worldwide.

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