PARIS/HONG KONG • A Tencent-led consortium is taking a 10 per cent stake in Vivendi's Universal Music Group (UMG), valuing the music label that houses Lady Gaga and The Beatles at €30 billion (S$45 billion) and giving the Chinese firm a global backstage pass.
The deal allows both companies to expand in a recovering global music market, giving Tencent more access to American artists while UMG can tap the Asian market, including big-selling "K-Pop" South Korean pop stars.
After months of talks, the French media giant Vivendi on Tuesday said it had finalised the sale of an initial 10 per cent of the world's largest music label to the consortium, which will have the option of buying up to 10 per cent more by next January on the same price basis.
Vivendi, controlled by billionaire Vincent Bollore, is seeking to cash in on the music industry's revival, driven by a growing subscription and advertisement-based music streaming services.
The initial deal will be followed by a second one which will allow Tencent Music Entertainment to buy a minority stake in UMG's greater China subsidiary.
Tencent did not respond to a request for comment, while Vivendi did not disclose the details of the consortium beyond saying they were "global financial investors".
Singapore's sovereign wealth fund GIC and Qatar Investment Authority (QIA) were also involved, a source familiar with the deal said.
QIA declined to comment and GIC did not respond to requests for comment.
The International Federation of the Phonographic Industry said last April that global recorded music revenues had risen 9.7 per cent in 2019 from the year before, while Universal was Vivendi's main third-quarter sales growth driver, with revenues rising nearly 16 per cent to €1.8 billion.
"Universal has been enjoying increased revenues for the last five years. With the company in a strong position, it can make sense to capitalise on the valuation with a minority sale at this point in the growth cycle," MB Capital director Marcus Bullus said of the deal.
The tie-up between Tencent and Vivendi builds on a partnership that was struck two years ago, allowing Tencent to license Universal's music for distribution over its streaming platforms.
Vivendi last July said it might sell up to half of UMG and any cash raised from a divestment could help finance a share buyback or acquisitions.
The transaction should also boost morale among Chinese deal-makers, with China-outbound mergers and acquisitions activity plunging to a 10-year low amid trade tensions between the United States and China, Refinitiv data shows.
Tencent Music Entertainment Group reported better-than-expected third-quarter revenue last November.
Although Tencent Music's user base is nearly three times that of Spotify, which is the world's largest music streaming service, it has comparatively fewer paying users.
Spotify, in which Tencent itself has a minority stake, had more than 100 million paid subscribers, whereas Tencent Music had about 35 million as of the third quarter.
Mr Bullus said it was unclear how Vivendi would use the cash and "how this will increase value for existing shareholders now potentially left with cash in their pocket but a smaller stake in a growing cash-generating company".