Breakingviews - Vivendi’s $40 billion music spinoff is Bolloré shuffle

Vincent Bollore, Chairman of the Supervisory Board of media group Vivendi, attends the company's shareholders meeting in Paris, France, April 19, 2018.

LONDON (Reuters Breakingviews) - The only surprising thing about Vincent Bolloré’s plan to spin off a chunk of Universal Music is that he didn’t think of it sooner. The French billionaire has contrived an ingenious way of unwinding a conglomerate discount at Vivendi, the media group he controls, while also retaining his grip on Taylor Swift’s music label.

Vivendi announced on Saturday that it’s considering handing its investors 60% of Universal. The Paris-based conglomerate would list the label on the Amsterdam exchange while hanging onto a 20% stake, matching the shareholding held by a consortium led by Chinese technology giant Tencent. Bolloré is targeting a minimum price tag of 30 billion euros for the business, which is also home to Elton John and Ariana Grande.

That looks achievable. Smaller peer Warner Music is valued at almost 16 times expected EBITDA for 2023, using median estimates compiled by Refinitiv. Apply the same multiple to UBS analysts’ forecast for Universal’s EBITDA that year and the label would be worth 33 billion euros including debt. Assuming net debt of 1.5 times 2021 EBITDA, the equity value would be just over 30 billion euros.

The spinoff should help unwind Vivendi’s conglomerate discount, handing an uplift to its shareholders. After the move, they will directly own Universal shares worth around 18 billion euros in addition to their investment in Vivendi. The French group’s remaining assets, which include pay-TV station Canal+, should have an equity value of 18.4 billion euros, using UBS sum-of-the-parts estimates, adding the remaining 20% Universal stake, and netting off the portion of net debt that remains on Vivendi’s balance sheet.

Add it all up, and Vivendi investors would hold stock worth 36.6 billion euros, or 6.7 billion euros more than the conglomerate was worth at Friday’s closing price. Investors clearly see the upside, adding about 5.3 billion euros to Vivendi’s market value on Monday morning.

Bolloré, whose family holding group owns 27% of Vivendi, gets his share of the upside. Even better, however, he will retain control of both groups. The spinoff will hand him about 16% of Universal’s shares directly. Combined with the one-fifth of the label still owned by Vivendi, he’ll have sway over about 36% of the music group. The reshuffle should benefit all Vivendi shareholders but, as usual, Bolloré will gain the most.


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