What's going on?
On Tuesday, French media conglomerate Vivendi revealed that it’s thinking about selling a stake in subsidiary Universal Music Group – the world’s biggest record label – to Chinese powerhouse Tencent.
What does this mean?
Vivendi first announced it wanted to sell part of Universal – home of Taylor Swift and Ariana Grande – last year. Sounds like Tencent’s a fan: it’s now reportedly in talks to snap up 10% of the group, as well as an “option” to buy another 10% in the future. The deal would value Universal at $34 billion, and Vivendi’s shareholders stand to pocket at least some of the cash from the sale through anticipated share buybacks.
Why should I care?
For markets: Thank u, next.
By securing an option, Tencent won’t actually commit to buying the additional 10% straight away. Instead, it’ll have the right, but not the obligation, to buy at this year’s price – as long as it’s within the next 12 months. It’s likely Tencent’s decision on whether to exercise the option will depend on how Universal does during that time. If it performs well, Tencent’s option might be “in the money” – in other words, the company might bag a bargain (as that 10% may be worth more than the fixed price it’d pay). And Tencent knows a thing or two about performing well in Chinese markets…
The bigger picture: Dangerous woman.
Universal bought a stake in Spotify years ago, which it’s held on to since the streaming service went public last year. But Tencent has its own music service which both competes with and is partly owned by Spotify. If the Chinese firm does end up investing in Universal, a potential conflict of interest could force Universal to sell its Spotify stake. Still, that’d be good news for those on Universal’s roster: Taylor Swift has made sure that any proceeds from a sale of its Spotify stake would go directly to Universal’s artists.