A mystery company is mulling a $1.8 billion+ bid for Believe… but may be shut out by Denis Ladegaillerie consortium’s prior dealings

Last month, MBW told you that a consortium is looking to take Believe private by acquiring the company via a bid worth around USD $1.65 billion.

That consortium is comprised of Swedish investment firm EQT, plus existing Believe investor TCV, and the music company’s founder and CEO, Denis Ladegaillerie.

This trio may yet face some competition in the bidding process.

Believe has confirmed in recent days that an additional, as-yet-unnamed “interested party” has made inquiries regarding the possibility of acquiring the company for a larger sum than that offered by Ladegaillerie and co.

On February 12, Paris-headquartered Believe confirmed that the Ladegaillerie consortium had made an offer for the company worth EUR €15 per share.

With 101.547 million shares in Believe up for grabs (on a fully diluted basis), Ladegaillerie’s bid therefore valued Believe at EUR €1.523 billion (or USD $1.65 billion at current exchange rates).

On Friday (March 1), Believe confirmed that it had since received a “confidential exploratory non-binding approach” from an unnamed third party “seeking to obtain access to confidential information and to engage into a dialog with a view to possibly making a more attractive offer to [Believe] and its shareholders”.

This mystery third party, according to Believe, “has indicated that it thinks it could value Believe shares at least at €17 per share“.

Believe clarified that said inquiry from the third party – so far, anyway – “did not constitute an offer or constitute any obligation to make an offer”.

If an official offer did come in at €17 per share, it would value Believe at EUR €1.7263 billion (USD $1.872 billion at current exchange rates) – approximately 13% higher than the Ladegaillerie consortium bid.

(Not irrelevant: Believe’s share price on the Paris Euronext is currently EUR €15.56, though that has jumped up from below €13 since the Ladegaillerie consortium’s bid was made public.)

There are, however, reasons for Ladegaillerie’s consortium to remain confident that their bid will win the day.

Last month Believe confirmed that Ladegaillerie’s consortium had already secured private agreements to acquire 71.92% of Believe from existing shareholders via two mechanisms:

  1. A takeover of 59.46% of Believe, acquired from existing shareholders TCV Luxco BD S.à r.l.Ventech and XAnge (who currently own 41.14%, 12.03%, and 6.29% of Believe respectively);
  2. Ladegaillerie, who currently owns around 12.5% of Believe, giving 11.17% of the company’s share capital to his consortium, and then selling a further 1.29% to the consortium at the offer price.

These two groups of transactions are referred to as the ‘Block Acquisitions’ by Believe’s board.

As you may have spotted, they would in effect see both TCV and Ladegaillerie selling and/or giving their existing stakes in Believe back to themselves (via the consortium).

Believe also confirmed last month that a further 3% of shareholders had privately agreed to sell their shares to the Ladegaillerie consortium at €15 per share.

To recap all of that in simple terms: the Ladegaillerie consortium already has handshake deals to acquire around 75% of Believe, with a decent chunk of these shares actually being sold/given to the consortium by Ladegaillerie and TCV themselves.

Previously, the Ladegaillerie’s consortium’s ‘Block Acquisitions’ faced two only potential hurdles: (i) Regulatory approval in France; and (ii) the issuance to Believe shareholders of a financial “fairness opinion” from Believe’s board (the ‘Board Condition’), informed by a report from independent experts.

On Friday (March 1), Believe announced that the Ladegaillerie consortium had informed it of its decision to waive the ‘Board Condition’ when it came to the ‘Block Acquisitions’ (i.e. the pre-agreed acquistion of that 71.92% chunk of Believe).

Consequently, said Believe, the ‘Block Acquisitions’ now remain subject only to regulatory approval (relating to anti-trust clearances), which Ladegaillerie’s consortium “expects to obtain in a short timeframe”.

Discussing any potential rival bid vs that of the Ladegaillerie consortium, Believe clarified in a statement on Friday: “[The] completion of the ‘Block Acquisitions’ would put [Ladegaillerie’s consortium] in a position of majority control of Believe, so that, under those circumstances, it would prevent a competing bidder from acquiring control.”

Presumably, if the potential competing bidder we know about is unable to acquire majority-control of Believe, they won’t be interested in going through the hassle of a €17-or-more-per-share bid process.

Therefore, the potential competing bidder’s only window of opportunity would be if there were any regulatory issues for Ladegaillerie’s consortium in acquiring the 71.92% (the ‘Block Acquisitions’).

And, as mentioned, Ladegaillerie’s consortium doesn’t believe it will incur any regulatory pushback.

(One curveball that might change this picture: what if either TCV and/or Ladegaillerie were themselves interested in selling a stake in Believe to a third party at a $1.87 billion+ company valuation? That seems unlikely in the middle of their own consortium bid.)

So… who’s the mystery potential bidder who might be interested in acquiring Believe at a $1.87+ billion valuation?

For fun, allow us to remind you what we wrote in an ‘MBW+ Monthly Review’ piece in January, on potential M&A activity in music’s distribution market:

“Elsewhere in the world of ‘quality’ artist and label distribution, we have Believe – currently in talks with potential private backers to take its business back off the stock market. Since floating in 2021, Believe’s public valuation has bounced between USD $1 billion and USD $2 billion-plus.

“Even so, Believe is significantly more valuable than it was in summer 2017, when a report in Japan’s Nikkei suggested – incorrectly – that the company was selling to Sony Music. The more interesting piece of that report in hindsight? Believe’s valuation at the time was understood to sit somewhere around the USD $445 million mark.

“Might any of the three major music companies now regret not making a half-billion-dollar move for Believe back then?”

Broadening that ‘Monthly Review’ column into discussing potential activity in distribution M&A across the music business, we added:

“Could any of the three majors, looking for a swift market share boost, execute a humdinger of a distribution acquisition in the rest of 2024?

“Perhaps Warner Music Group, whose streaming recorded music revenues currently track at slightly over half the size of Universal’s, wouldn’t be a bad bet.

“For what it’s worth, Warner’s Robert Kyncl did say in his New Year’s note to staff: ‘We are building scaled and highly effective distribution infrastructure so that we can radically and efficiently grow the large ‘middle class’ of artists while our frontline labels can remain focused on artists with the highest potential.’

“Whether WMG will do so by building automated tech solutions, laying down hard cash for an acquisition, or both, remains to be seen.”

Believe went public on the Paris Euronext in June 2021, initially floating 14.35% of its equity via the IPO.Music Business Worldwide