Vivendi announced this week that it is no longer spinning off its Universal Music Group with an IPO; but rather that it wants to sell up to 50% of the world's largest music company. But given the price tag and other hurdles who can afford UMG? Who will want to?
Despite 50% of Universal Music Group coming with a $15-$25 billion price tag, there would seem to be no shortage of logical buyers. But a closer look shows that corporate parent Vivendi has fewer options than one might imagine.
What about a partnership with one of the other major music groups? Sony and WMG owner Access Industries both have access to the capital need and much to offer beyond that. But regulators, particularly in Europe, would never approve of more music industry consolidation. Back when UMG bought a much smaller and struggling EMI, the EU forced the sale of about a third of its assets to WMG and various indies.
Bertelsmann might be able to put their hands on the money needed, and as more diverse company have a very slightly better chance of squeaking by regulators. But it wasn't that along ago that it divested itself of its half of then major label group Sony-BMG ot chart its own course. The move seems to be paying off, so what is the incentive to reverse course.
Other 'big' music players like Kobalt, aren't nearly big enough.
How about Spotify or Apple? How clever it would be for Spotify or even Apple's bottom line to have the billions it pays to UMG indirectly coming back to help their bottom line. But think again. There are potential anti-trust issues here too, and whichever streamer bought half of UMG would guarantee to feel the ire of the other two major labels as well as the indie community. "Sure, you can still stream our music, but don't expect a cooperative relationship, much less an exclusive, ever again..."
That leaves Vivendi looking for partners in just two categories that have deep enough pockets and might have some interest in investing in music: 1) diverse conglomerates, perhaps with media but not major music holdings or 2) an investment vehicle - private equity firms, venture capital funds and the like.
As for conglomerates, China's Tencent would seem a front runner. They have their own music service in China and, after a stock swap, own a stake in Spotify. But that's probably not enough to stop EU and US regulators, and a partnership opens up the huge Chinese market for both UMG and Vivendi. Verizon bought both AOL and Yahoo to get into the content business. A hookup with UMG and Vivendi could round out their portfolio. Liberty Media's John Malone has a penchant for this kind of deal and already controls SiriusXM and major stake in Live Nation. Talk about vertical integration.
But statements from Vivendi hint that they may not be looking for a very active partner. After all this is about cash for Vivendi and not about changing the successful course charted by UMG chief Sir Lucian Grainge. That leaves investment firms.
$15 - $25 billion is a large sum for most players, but two that might be interested in putting the funds together as part of a consortium are Silver Lake Partners (major investors WME-IMG and Irving Azoff's Oak View Group) and Chinese foiance CMC Capital Partners, which owns a stake in CAA; Warner Bros.’ Chinese joint venture, Flagship Entertainment, and Brian Grazer and Ron Howard’s Imagine Entertainment. In the past, CMC has partnered with Tencent, Alibaba and others to fund some deals.
Vivendi has said that it could take 18 months or more to find the right partner. In that time, the landscape of potential investors could change dramatically.