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6 Months : From May 2019 to Nov 2019
By Anthony Shevlin
Shares in Vivendi SA (VIV.FR) surged Tuesday as investors welcomed news that it entered preliminary negotiations with China's Tencent Holdings Ltd. (0700.HK) for a 10% stake in its Universal Music Group business.
At GMT 0735, shares in Vivendi traded 6.3% higher at EUR25.50.
The deal would value the record label at 30 billion euros ($33.50 billion) and the Chinese internet giant would have a one-year option to acquire an additional 10% stake in the music business at the same terms.
Analysts at Citi said the initial stake is less than expected and the implied EUR30 billion valuation of Universal is below the top end of the range.
"While there is no doubt the implied equity value is above what is currently implied by the market price--around EUR25 billion--it is also below the top end of the range," Citi said, adding that bulls were expecting a valuation between EUR30 billion and EUR40 billion.
Vivendi originally said in July last year that it was considering selling up to 50% of Universal, but ruled out an initial public offering. Back then, the company said the move would probably be launched in the fall, and could be completed within the next 18 months.
Vivendi said its planned sale of a stake in Universal would help it raise cash for a buyback or acquisitions.
Citi analysts said the details of today's announced talks with Tencent suggest just EUR3 billion of buyback potential compared with expectations of over EUR10 billion.
"From [Vivendi's] perspective this is a great deal, even if the proposed concurrent strategic partnership doesn't yield any significant benefit," Citi said.
As for Tencent, Citi said having a stake in one of the three big music labels will offer it strategic insights on how the industry could develop from the perspective of an important upstream business.
Write to Anthony Shevlin at firstname.lastname@example.org; @anthony_shevlin
(END) Dow Jones Newswires
August 06, 2019 03:59 ET (07:59 GMT)
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