LONDON: Pop groups tend to lose their appeal when the lead singer embarks on a solo project. That's the risk facing media conglomerate Vivendi , which is debating an initial public offering of crown jewel Universal Music Group, whose artists include Rihanna.
Vincent Bollor?, whose family investment vehicle controls Vivendi through a 24 percent stake, and fellow board members including son Yannick, will on Thursday examine options for the music label. Floating a minority stake could create value, depending on the price it fetches, and how investors view the ragtag rump of assets left behind.
Chief Executive Arnaud de Puyfontaine has suggested Universal could be worth at least $40 billion (34 billion euros), roughly the same as Vivendi's current value including debt. That would give Vivendi a large boost if investors value the group in line with the sum of its parts after the IPO. Using a typical media-sector multiple of eight times forward EBITDA, based on Morgan Stanley forecasts, Vivendi's non-music operations like pay-TV unit Canal Plus are worth 6.8 billion euros. Listed stakes in Telecom Italia, Mediaset and others are worth 4.7 billion euros.
Add that to de Puyfontaine's Universal valuation and the total would be worth 45.4 billion euros. Strip out debt and minority interests, and Vivendi's equity would be worth 42 billion euros, or 40 percent more than its current market capitalisation.
That would make the listing a no-brainer. But de Puyfontaine's valuation implies a chart-topping multiple of 5.7 times this year's revenue, using Morgan Stanley forecasts. The closest peer, recently-listed Spotify, is worth 4.1 times sales. Use the Swedish group's multiple, and Universal's price tag is 24.2 billion euros, and Vivendi's equity 32.3 billion euros, implying just a 7 percent bump.
Even that may be unrealistic. Once listed, Universal's equity may suffer from not having a control premium, since Bollor? will probably continue to call the shots. Moreover, the rest of Vivendi may be less appealing to shareholders. They could get exposure to fast-growing Universal directly, and leave behind the less exciting rump business, over which they have little say.
Vivendi's shares have risen 6.5 percent since the start of May, when the group said it was examining "differing hypotheses" for Universal. The stock may be vulnerable if Bollor? decides to keep the band together.
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