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Universal Music’s debut on electric stock market leaps with a valuation of $55 billion

On Tuesday, Universal Music Group’s (UMG.AS) stock jumped more than a third in its stock market debut, as investors wagered that the music streaming boom had a long way to go.

In Europe’s largest listing of the year, the world’s largest music company, which covers musicians and song catalogs ranging from Billie Eilish to The Rolling Stones and Bob Dylan, had its market value jump to 47 billion euros ($55 billion).

Universal was split off by Vivendi (VIV.PA), which gave its stockholders a 60 percent ownership in the company.

According to Refinitiv statistics, Vivendi’s market value has dropped by two-thirds to around 12 billion euros as the company refocuses on other media assets such as pay TV brand Canal+.

U.S. hedge fund billionaire William Ackman and China’s Tencent (0700.HK), as well as Vivendi’s controlling shareholder Vincent Bollore, are among the biggest winners from the Amsterdam listing.

Universal Chairman and CEO Lucian Grainge will also receive bonuses tied to the listing, which are expected to total at least $140 million, according to a source close to the firm.

By mid-session trading, Universal’s shares were trading at 24.97 euros, up around 35% from their reference price of 18.50 euros.

Bollore (BOLL.PA), which owns 27 percent of Vivendi, was up 2.4 percent, while Ackman’s Pershing (PSH.AS) was up 4% on the Amsterdam stock exchange.

Universal, the largest of the “big three” record labels, trades at a 25% premium to its only listed competitor, Warner Music (WMG.O), according to Bernstein analyst Matti Littunen. Sony Music is a competitor for both of them.

“There’s no sign of a European discount here,” Littunen wrote in a note, adding that the stock’s performance would ease pressure on Universal to seek a dual U.S. listing.

Universal is based in Hilversum, Netherlands, but its headquarters are in Santa Monica, California.

The good start also serves as vindication for Ackman, who was forced to do an embarrassing U-turn in July after US regulators banned his plans to invest in Universal through his special purpose acquisition company (SPAC).

Instead, Ackman, whose grandpa was a singer, chose to purchase a 10% position through his primary Pershing Square hedge fund, which is already up more than 30% on paper.

Universal, whose other famous singers and catalogs include Justin Bieber and The Beatles, intends to capitalize on arrangements with ad-supported sites like TikTok and YouTube, as well as streamers led by Spotify, amid the streaming boom.

“I believe we’re only at the start of the next wave of growth,” Grainge told Reuters, “since music subscription and ad-supported consumption is growing globally and has a long runaway ahead.”

Universal makes money from the rights to its massive repertoire, and it also gets royalties from the artists it represents on social media platforms and performance fees when their songs are performed.

Live concerts and Universal’s merchandising business were impacted hard by the COVID-19 epidemic, although ad-supported earnings have recovered after a brief dip.

Vivendi’s IPO has a lot riding on it, as it aims to get rid of a conglomerate discount that it believes has been weighing on its stock.

Last week, Vivendi said that it was planning to buy another stake in Lagardere, opening the door for a full takeover of the Paris Match magazine owner.

Universal has increased revenues for the past six years, with core profitability of 1.36 billion euros in 2020 on 7.43 billion euros in revenue. It expects sales growth of at least 10% this year and in the upper single digits the next year.

The listing is Euronext’s latest victory in Amsterdam, which has expanded as a financial center since the United Kingdom’s exit from the European Union. Prior to Universal, Amsterdam has seen a record 14 initial public offerings (IPOs) this year.

According to Refinitiv estimates, 17 banks are projected to make a combined $60-$65 million in fees from advising Vivendi and Universal on the purchase, with BNP Paribas and other top advisers taking the lion’s share.

(1 dollar = 0.8522 euros)

Read on Reuters
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