Why Universal is like ‘cheese puffs’ – and could be headed for an IPO

The MBW Review gives our take on some of the music biz’s biggest recent goings-on. This time, we mull over recent comments from the two most powerful executives at Vivendi regarding the possibility of ‘spinning out’ Universal Music Group. The MBW Review is supported by FUGA.

The ownership of Universal Music Group is looking increasingly likely to change in the coming months.

UMG’s parent Vivendi held a shareholders meeting earlier today (June 1) in Paris, at which Chairman Vincent Bolloré was asked about the possibility of Universal being ‘spun out’ from Vivendi via an IPO.

His answer was as surreal as it was intriguing.

“The value [of Universal] increases every day and it’s true that an IPO would be an interesting thing,” responded Bolloré – a clear sign that a flotation of the music company is on his mind.

According to Reuters, Bolloré then added: “The key question for an IPO is to know when is the best time to do it. It’s like cheese puffs – you have to take them out at the right moment.”

You hear that, Daniel Ek? Goodness knows why you’re faffing about with this direct listing malarkey.

An IPO’s just like cheese puffs, mate. When the oven goes ding, you fill your boots.

The dairy-free segment of Bolloré‘s comments (particularly the bit where he says a Universal IPO would be “interesting”) comes little over a week after Vivendi CEO Arnaud de Puyfontaine gave another telling interview on this topic.

Like Bolloré, de Puyfontaine also made positive noises regarding a potential UMG flotation.

When quizzed on the possibility of UMG – or a minority stake in UMG – being floated onto the stock market, de Puyfontaine told the Wall Street Journal: “[Universal] is not a sacred cow.”

The exec clarified that Vivendi had no imminent plans to execute any kind of Universal IPO – but this was provocative language nonetheless.

Especially provocative, in fact, when you consider that Bolloré and de Puyfontaine’s relaxed attitude to UMG being ‘spun out’ today appears in stark contrast to their attitude two years ago – when Universal was facing a dual disruption.

In Q1 2015, Liberty Media boss John Malone and his right-hand man Greg Maffei reportedly paid a visit to Vincent Bolloré.

Their mission: to convince Vivendi’s top dog to give his blessing to a UMG acquisition for a princely sum.

That princely sum, it later transpired, was probably €13.5bn ($15bn).

“The disposal of our music business will be over my dead body.”

Arnaud de Puyfontaine, Vivendi (in 2015)

Bolloré evidently sent the duo packing, explaining that UMG was an essential pillar of Vivendi’s long-term media growth strategy.

Arnaud de Puyfontaine put the final nail in the coffin – telling a conference in London in March 2015: “The disposal of our music business will be over my dead body.”

At the same time, Vivendi faced another Universal-related disturbance – one much closer to home.

A rebel shareholder in Vivendi, who had previously been calling for a UMG sale, started making noise about spinning the company out onto the stock market.

P. Schoenfeld Asset Management (PSAM) suggested that Universal’s growth would be “obscured” while it remained within Vivendi. It called for an spin-out IPO, adding that UMG “would benefit from operating and structural advantages as an independent company”.

Eventually, PSAM, which put a €9bn valuation on UMG, was hushed after Vivendi paid out a large dividend to shareholders.

“PSAM said it understood and accepted Vivendi’s strategy aimed at… building on UMG and Canal+ assets,” said Vivendi in a satisfied statement after PSAM retracted.

The crucial question, as articulated by Vincent Bolloré today: when should his management team stop ‘building on UMG’ – and cash in?

If Vivendi top brass is to be believed, Universal has now been valued at an almighty €20bn ($22bn) by banks hypothetically pricing an IPO.

That astronomical figure is, remember, a 31-times multiple on Universal’s 2016 EBITDA of €644m ($700m).

No wonder Bolloré is considering his options – and de Puyfontaine is telling us that nothing in Vivendi’s stable is “sacred”.

The commitment of Vivendi to its subsidiaries, like any institution entirely answerable to shareholders, will become brittle at the right price.

There would, no doubt, be major benefits for UMG on the stock market, but major drawbacks too.

Its successful leader, Sir Lucian Grainge, who has led UMG to record revenues, would have to bat away constant distraction from the demands of Wall Street.

UMG would also be a less protected business (or less ‘obscured’, as PSAM put it).

You wonder how public shareholders would react, for example, to deals gone sour – namely those recent reports that UMG feels short-changed by its recent Prince agreement, and may want its $30m retrieved.

There is no doubting the manifold opportunities for growth at a company like Universal Music Group provided by the future of streaming.

But something is in the air: valuations of UMG, rooted in ‘life of subscriber’ streaming estimates, are reaching eye-watering levels.

It’s tough to blame Vincent Bolloré for flirting with the idea of striking while the iron’s hot.

Time to strap in and watch Universal’s future unfurl. It’s going to be a fascinating few months.

We’ve already seen a “dead body” and tasty baked goods cited by Vivendi – and we’re still nowhere near Universal’s ultimate commercial destiny.

Somebody, please pass the cheese puffs.

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The MBW Review is supported by FUGA, the high-end technology partner for content owners and distributors. FUGA is the number one choice for some of the largest labels, management companies and distributors worldwide. With a broad array of services, its adaptable and flexible platform has been built, in conjunction with leading music partners, to provide seamless integration and meet rapidly evolving industry requirements. Learn more at www.fuga.comMusic Business Worldwide

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