VIV Vivendi SE

By Stephen Wilmot 

While the pandemic has silenced concert halls around the globe this year, the world's largest music companies have had plenty of excuses to party. The latest is Chinese tech giant Tencent's move to double its 10% stake in Universal Music Group.

The deal announced Friday should bolster investor confidence in Vivendi, which will still own the remaining 80% of UMG. The rub is that the French media company's outside shareholders aren't in control of what it does with the cash raised. Vincent Bolloré, the billionaire who steers the company via his family vehicle, has a record of controversial investments.

Tencent's decision to double down on Santa Monica, Calif.-based UMG, the largest of the "big three" companies that own rights to most of the world's recorded music, isn't a huge surprise. It agreed to buy 10% last year at a total company valuation of EUR30 billion, equivalent to $36.8 billion, with the option to buy another 10% at the same valuation by Jan. 15, 2021 -- an option it is now exercising. The price tag seemed high at the time, but meanwhile stock markets have enthusiastically tuned into the music industry. Shares of Warner Music Group, another of the big three, have risen 44% since their initial public offering in June, while Spotify stock has more than doubled this year.

UMG hasn't been immune to Covid-19, but its symptoms have been relatively mild. In the second quarter, when much of the Western world was locked down, its revenues fell less than 5% after stripping out currency and portfolio changes, as a collapse in CD, merchandising and other revenues typically dependent on physical interactions was partly offset by further growth in streaming. In the third quarter, UMG's revenues rose 6.1% -- slower than before the pandemic but nothing to worry about.

For Vivendi investors, the drama has been elsewhere. Most notably, the company has accumulated a roughly 27% stake in Lagardère, an underperforming French conglomerate, and teamed up with an activist hedge fund to push for board seats. Bernard Arnault, the controlling shareholder of LVMH Moët Hennessy Louis Vuitton and Europe's richest man, has taken a smaller stake in support of the founding family that still runs Lagardère.

Publicly, Vivendi has said only that it sees value in Lagardère. That has left ample scope for speculation in the French press that Vivendi might be interested in parts of Lagardère's book publisher Hachette, or a radio station called Europe 1. Reuters reported Thursday that centrist President Emmanuel Macron's reelection campaign is worried about Mr. Bolloré consolidating media assets into a kind of French Fox News with a right-wing agenda. That might explain the otherwise puzzling involvement of Mr. Arnault, a Macron supporter. Vivendi already owns Canal+, a big French pay-TV company.

The melee embodies both the opportunities and risks for Vivendi investors. Mr. Bolloré has grown rich through canny investments, of which the stake in Lagardère -- acquired during the worst of the pandemic -- might be another example. But he gives other shareholders few clues as to a strategy that can appear strange. Selling fast-growing UMG and buying a book publisher would be a contrarian trade.

The questions surrounding Vivendi's other interests will grow more urgent as it moves toward an initial public offering of UMG, planned for 2022. At that point, music will become a less dominant chunk of the company's portfolio and the stock will dance to another tune -- one chosen by Mr. Bolloré.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

(END) Dow Jones Newswires

December 18, 2020 11:44 ET (16:44 GMT)

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