Universal Music shares hit the high notes on their trading debut

Shares in Universal Music Group leapt by more than a third in their trading debut, valuing the world's biggest label at €45.5 billion and delivering a $140 million (€119 million) payday to veteran chief executive Lucian Grainge.

The premium valuation cements a turnaround in the fortunes of Universal, as investors bet that the boom in streaming services will drive years more growth.

The listing on Euronext in Amsterdam on Tuesday came after French media group Vivendi decided to distribute shares in Universal, its biggest business, to its own shareholders.

It is a big win for Vivendi’s billionaire controlling shareholder Vincent Bolloré, whose company Bolloré still owns about 18 per cent of Universal after the listing. Vivendi’s shares fell almost 20 per cent, reflecting how the company has now been shorn of its biggest business. Bolloré Group’s shares, through which the billionaire owns his remaining stake in Universal, rose 2 per cent.

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Each Vivendi shareholder received one share of Universal before the listing, so 60 per cent of the company is now in their hands, and 10 per cent with Vivendi itself.

US hedge fund investor Bill Ackman and a consortium led by China's Tencent separately bought 30 per cent of the group before the spin-off.

The valuation falls somewhat short of the most optimistic estimates that Wall Street had issued before the listing. For example, JPMorgan had pegged the value at €54 billion. The indicative share price set on Monday by the company was €18.50 and the shares closed at €25.10 on Tuesday.

Streaming

The music industry has staged a dramatic comeback in the past five years since streaming services began funnelling billions of dollars to its biggest companies – Universal Music, Sony Music and Warner Music – which hold copyright to most of the world's songs.

Universal is hoping that more reliable subscription revenue from streaming services such as Spotify will continue to fuel royalty revenue and profit growth in the coming years, while emerging markets and new categories will also grow the music pie.

Mark Mulligan, an analyst at Midia Research, said investors were betting that Universal will benefit from recent deals it struck to license its catalogue to new types of customers such as social networks TikTok and Facebook, and companies such as Peloton and Fortnite.

“If this had been two years ago even, things might have looked a little more risky because the industry was so reliant on Spotify,” he said. But the new licensing deals do “genuinely open a new chapter for music. Whether it translates into revenue as big as everyone is hoping, is a separate story.”

Less profitable

Carving out Universal has left Vivendi a much smaller and less profitable company whose remaining businesses are pay-TV provider Canal Plus, advertising agency Havas and book publisher Editis.

Last year, Universal brought in half of the group’s €16 billion revenue and more than three-quarters of its €1.6 billion in operating profit.

But the stake sales to Ackman’s fund Pershing and Tencent have brought Vivendi a cash pile of roughly €8 billion, according to Kepler analysts, which it is expected to deploy on acquisitions to chart a new course.

Vivendi has already signalled its first big move to rebuild. Last week it announced that it would boost its stake in French publishing and retail group Lagardère, paving the way for a full takeover offer later if regulators approve.

– Copyright The Financial Times Limited 2021