Whatâs Going On Here?French media group Vivendi announced plans over the weekend to spin out Universal Music Group into a standalone company, in hopes the worldâs biggest music label will enjoy a critically acclaimed solo career. What Does This Mean?Music companies have seen their stars rise and values soar in recent years as streaming services like Spotify earned them billions in royalty payments. That might be why Vivendiâs decided to let its music business go it alone: the companyâs planning to list Universal on Amsterdamâs stock exchange by the end of the year. Vivendiâs already sold 20% of the business off to a group of companies that included Chinese tech giant Tencent, and now itâll give 60% of the newly formed companyâs stock to its shareholders â and keep 20% for itself, naturally. Why Should I Care?For markets: The hills are alive with the sound of money.
Universal, Sony Music, and Warner Music control nearly 80% of the music market between them â a market that, according to Goldman Sachs, could more than double in size by 2030 to hit $45 billion (tweet this). And investors seem to agree: Warnerâs seen its share price rise 24% since it listed last June, while this announcement saw Vivendiâs stock jump 20%.
The bigger picture: Vivendi is streamlining its business.
Youâd be forgiven for wondering why, if Universalâs such hot property, Vivendi would want to spin it off at all. But by narrowing its portfolio of businesses, the French conglomerate should leave its investors with two more valuable stocks and make itself a more compelling investment case going forward. Keep in mind that Universal was valued at $36 billion when the Tencent-led investors bought their stake in 2019, but Vivendi was valued at just $37 billion late last week. Consider then that Universal only accounted for 73% of Vivendiâs profits in 2019, and itâs clear investors are valuing the whole at much less than the sum of its parts. | 