Warner and Sony buy $200m of shares in Tencent Music Entertainment ahead of streaming company’s US IPO

MBW has started digging through Tencent Music Entertainment’s IPO filing with the US Securities and Exchange Commission.  It hasn’t taken us long to spot the names of the major labels… attached to some big news.

According to a note in the F-1 prospectus, both Warner Music Group and Sony Music Entertainment have acquired shares in TME, for an aggregate cash consideration of approximately $200m.

In exchange for their money, the two parties have divided a total of 68,131,015 ordinary shares in TME between them.

The $200m deal went down yesterday (October 1). Universal Music Group is not mentioned as a recipient of shares.

Under the agreements, shares held by Warner and certain shares held by Sony will be subject to a lock-up which will expire upon the earlier of the following: the third anniversary of the completion of the IPO of TME, or on October 1, 2021 –  subject to limited exceptions.

The remaining shares held by Sony will be subject to a lock-up that will expire upon the earlier of the following: the end of six months following the completion of the TME IPO or April 1, 2019. This is also subject to limited exceptions.

Warner and Sony can request TME to repurchase the shares held by them at their subscription price if there is no successful IPO by the end of 2019.

Both Warner and Sony have done rather well out of their holdings in TME rival Spotify, of course.

Warner confirmed in August that it had sold all of its shares in Spotify for around half a billion dollars.

Sony, meanwhile, sold around 50% of its shares in Spotify for approximately $750m in April.

Both companies have shared the profits from these sales with their artists – but Sony chose to ignored unrecouped balances when doing do.

Warner allocated 25% of its Spotify share sale money to its artists, but because it allocated this cash against unrecouped balances, a significant proportion of it would have remained at WMG.

MBW revealed earlier today (October 2) that Tencent Music Entertainment had filed to float on the New York Stock Exchange and/or the NASDAQ.

The F-1 reveals that in the six months ended June 30 this year, TME’s revenues grew to 8.62bn yuan (US $1.3bn) compared to 4.49bn yuan in the same period of 2017.

Gross profit in H1 2018 jumped to 3.48bn yuan ($526m) versus the prior-year period’s 1.38bn yuan – a 151.7% year-on-year rise.

Within these figures, TME also breaks down the amount of money it is deriving from digital music (the rest of its revenues are generated from ‘social entertainment services’).

The F-1 reveals that TME turned over 2.55bn yuan ($386m) from online music services in H1 2018.

That was up 87% on the 1.36bn yuan generated from the same sector in H1 2017.

TME’s profit after tax stood at 1.74bn yuan ($263m) in the first half of this year.Music Business Worldwide

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