Deutsche Bank Values Universal Music Group at $33.3 Billion — Higher Than Its Parent Vivendi
It’s the perfect time to sell — a 50% stake, that is.
Universal Music Group woke up a lot more valuable this morning, at least in the eyes of Deutsch Bank. On Monday morning, the Frankfurt-based investment banking and financial services conglomerate substantially bumped its valuation of the world’s largest label.
How substantially? Deutsche has dramatically upped UMG’s estimated market valuation to €29 billion, or $33.3 billion at current exchange rates, from €20 billion previously. That’s a 45 percent increase, literally overnight.
That’s like your Brentwood condo going from $1 million to $1.45 million — over the weekend.
“With the hype around UMG stake sale having subsided, there is now scope for valuation to surprise to the upside in 2H 2019,” Deutsche declared. Whether the hype has truly subsided is subject to debate, and ironically, Deutsche could be guilty of contributing to it.
But from the perspective of Vivendi CEO Arnaud De Puyfontaine, Deutsche is finally coming around. Back in late 2017, the Vivendi chief pegged UMG at a lofty $40 billion, with scoffs heard amongst investors. Now, that figure doesn’t seem quite so overblown.
Oddly, €29 billion is more than the entire valuation of UMG owner Vivendi SA, which is currently worth €28.3 billion.
Indeed, UMG is easily emerging as Vivendi’s crown jewel, but a jewel the French conglomerate wants to sell — at least 50% of it.
Outside of the quirky math, Deutsche’s updated assessment suggests that either Vivendi is undervalued, UMG is overvalued, or both.
But why is Deutsche bank suddenly increasing its estimates on Universal? The answer to that is simple: streaming. In its report, the Frankfurt-based bank predicted that streaming revenue would surge to $21 billion in 2023, up from $7 billion in 2018 in terms of trade dollars.
So who’s buying, especially at a price tag that easily surpasses $15 billion?
Deutsch offered a very long list, which still suggests that talks are wide open. The Deutsche suitor list includes Liberty Media, Tencent, Alphabet, Facebook, Amazon, Spotify, Apple and Alibaba. All could potentially acquire a 50% share.
Earlier, Liberty Media has expressed interest in a possible UMG buyout. “Would we look at UMG if presented? Absolutely,” Liberty Media CEO Greg Maffei stated in November. “Does it make potentially some sense to own part of the content infrastructure as a way to hedge? Absolutely.”
Maffei noted that owning a piece of Universal Music Group would help Liberty to become “the world’s largest audio-entertainment company.” But others, including Spotify and Tencent, could dramatically transform their businesses with a UMG stake. Spotify, for example, could significantly reduce its licensing overhead, and potentially start influencing rate structures for smaller majors like Sony Music Entertainment.
Regulatory concerns notwithstanding, Spotify could also wield serious leverage over rivals like Apple Music. Then again, Apple could do the same against Spotify with its own UMG purchase — and Apple has a lot more cash to play with.
Then, there’s the distinct possibility of a bidding war, depending on the broader market climate. And whoever grabs this crown jewel could substantially tilt the power balance in the music industry.