Bolloré dances to the beat of his own drum and mutes Vivendi doubters

Source:Global Times Published: 2019/8/11 18:28:40

Never doubt Vincent Bolloré. That's one lesson from Tuesday's announcement that Vivendi, which is controlled by the French tycoon, may sell 10 percent of Universal Music Group to China's Tencent Holdings at a price that values the label at 30 billion euros ($33.5 billion). The second lesson is less heartening: more asset sales will be required to erase Vivendi's persistent conglomerate discount.

The 67-year-old billionaire, who controls Vivendi with a roughly 28 percent economic stake, raised the prospect of partially selling Universal, home to Taylor Swift and Drake, in May 2018. Fifteen months later, the Paris-based company has finally entered "preliminary negotiations" with gaming behemoth Tencent for a 10 percent sale. The Chinese company also gets the option of buying another 10 percent at the same price within a year.

The benefits for Tencent are unclear. It would effectively pay 3 billion euros - or a quarter of this year's free cash flow using Refinitiv estimates - for a stake with no control over Universal. The benefits are more evident for Vivendi.

A sale would reassure investors who had feared Bolloré would fail to secure a deal this year. Vivendi shares rose 7 percent on Tuesday, more than reversing the losses they had suffered over the last three months. 

Additionally, partnering with the Chinese group, which owns the $23 billion streaming service Tencent Music Entertainment, helps Universal tap into the growth of paid music in the world's most populous country.

The 30 billion euro price tag also vindicates Bolloré's contention that the stock market has undervalued Vivendi's crown jewel. Universal's sales in the first half of 2019 rose 19 percent from a year earlier, to 3.3 billion euros, as it captured the biggest chunk of royalties paid out by streaming services Spotify and Apple Music. 

Assuming that growth rate continues, Universal's 2019 sales would surpass 7 billion euros. The implied revenue multiple of Tencent's purchase, just over 4 times, is higher than tech darling Spotify.

The impressive valuation highlights Bolloré's main problem. After Tuesday's share price rise, Vivendi is worth about 35 billion euros including debt. If the Universal price is right, Bolloré's other assets including Canal+, ad group Havas and a string of listed equity stakes are almost worthless. Further sales could help ease that discount. It's an incentive for Bolloré to move more quickly towards his next deal.

The author is Liam Proud, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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