Tencent Reportedly Seeking Co-Investors for Universal Music Group Stake
Tencent Holdings Ltd. is in talks to enlist potential co-investors for its planned purchase of a minority stake in Universal Music Group from Vivendi, Bloomberg reports, citing sources with knowledge of the matter.
Asia-based private equity firm Hillhouse Capital and Singapore sovereign wealth fund GIC Pte. are among the potential investors that Tencent has approached, according to the report.
The sources also say Tencent plans to lead the purchase of 10% stake in the world's biggest music company within the next few months, and plans to raise about $1.1 billion in debt to help fund the deal, while the rest will likely be funded in equity.
Vivendi announced it had entered preliminary talks with the Chinese media giant on Aug. 6, with negotiations based on a €30 billion ($33 billion) valuation for Vivendi. Tencent also had a one-year "call" option to buy another 10% on the same terms.
Adding co-investors would allow Tencent to share both the costs and risks of the buyout. It could also ease scrutiny during the regulatory approval process, as Tencent would be aquiring a smaller share on its own, while building a relationship with UMG at the same time -- thought it's unclear whether Tencent and UMG would actively work together under the proposed deal.
Co-investors or not, the deal could be a win-win. UMG would gain a partner to promote its roster -- including Lady Gaga, Taylor Swift and U2 -- in China's growing music market, which the IFPI named the world's seventh-largest in 2018. At the same time, Tencent would be able to more effectively use UMG's catalog across its products, which include music streaming platforms QQ Music, Kugou Music and Kuwo Music.
Representatives for Vivendi and Hillhouse declined to comment, and representatives for Tencent and GIC did not respond to requests for comment.
Tencent Music Entertainment Group recently announced its third-quarter 2019 financial results, reporting total revenue of 6.51 billion Chinese yuan (U.S. $910 million), representing a 31% increase year-over-year. In the report, it was noted that Swift's "Lover" sold nearly 6 million units in 24 hours on Tencent platforms. Meanwhile, in late August, China's competition regulator launched an investigation into Tencent Music, reportedly concerning whether Tencent Music's exclusive deals with international majors Universal Music, Sony Music and Warner Music violate Chinese anti-competition rules.