Vivendi Spin-off (Universal Music) Notes

August 26, 2021 Notes

While not strictly spin-off news, Bill Ackman’s Spac (PSTH) announced Friday morning that it would be purchasing a 10% stake of Universal Music Group (UMG) from Vivendi (VIV). UMG being a spin-off of VIV, a French media conglomerate that wanted to complete the transaction by year end.

It’s been just over a year since Ackman filed to raise PSTH in late May 2020, and with such a fast recovery from the pandemic, it has been hard to find deals (lots of competition). And with PSTH having a two year life, Ackman was under presser to secure a deal this year or he would have to liquidate the fund back to investors. So in a rather complex deal, Ackman’s Spac PSTH will be split into three separate vehicles. The deal, as stands, means that PSTH will use $4.1B (roughly 73% of its $5.6B in cash) to buy the 10% stack for a $40B valuation.

On paper this seems like a reasonable deal for all parties. For Vivendi, the deal helps its minority shareholders dodge some of the tax hit that they would have seen from the Spin-off of UMG, while also giving VIV the cash to buyback shares post-spin. Looking at the transaction PSTC is getting UMG for ~21x EBITDA, which next to WMG (their best trading comp) trades for ~20x. So while this is a premium, it’s a justifiable premium being that UMG is a bigger label and with its larger catalogue has a higher chance of growth at a quicker rate to WMG.

February 19, 2021 Notes

Vivendi announced that it is exploring spinning off a portion of Universal Music Group in part to reduce Vivendi’s conglomerate discount.
Vivendi recently completed the sale of 10% of Universal to Tencent at a 30 billion euro valuation, increasing Tencent’s ownership stake to 20%.
Vivendi plans to retain 20% of Universal and potentially distribute the remaining 60% of the company to Vivendi shareholders.
Universal Music has been doing very well recently due tp surging popularity of streaming offsetting drops in publishing and advertising revenue due to the pandemic.
Originally, Vivendi had planned to complete the spin-off in 2023 but has accelerated those plans.
Universal Music is the worlds largest record label and represents many famous artists including Taylor Swift and Lady Gaga.
Universal will list in the Netherlands.
Currently, Vivendi has a 35 billion euro market cap.
UBS estimates it will be worth 18.4 billion euros (including its 20% stake in Universal). Vivendi shareholders will also receive their pro rate share of Universal worth ~18 billion euros (60% x 30billion euros). Thus, Vivendi appears to be trading roughly inline with its sum-of-the-parts valuation.