If Universal Music Group’s spinoff from parent Vivendi was an album or single, it would be number one with a bullet, in old music-industry terms: With a closing price of €25.10 on the first day of the company’s stock launch on the Euronext Amsterdam, the world’s largest music company landed a whopping 36.5% above its initial reference price of €18.50.
The splash yields a market value of €45.51 billion ($53.37 billion), easily justifying the rosy evaluations that investment analysts floated in advance of the initial public offering.
Among reports circulated in advance of Tuesday’s launch, Barclays had floated one of the most optimistic forecasts when its London office estimated a valuation of €41.4 billion ($48.4 billion), up from its earlier calculation of €38.5 billion.
“This would suggest that Vivendi got the balance right between pushing up its value versus pent-up demand,” says Mark Mulligan, managing director of UK media analysis firm MIDiA Research. “If you are an institutional investor and want to add music to your portfolio, then UMG is as good as it gets.”
Although Monday was a difficult day for the New York exchanges, UMG’s Amsterdam offering, which launched at 3 a.m. New York time, showed “massive investor appetite for this name coming out of the gates,” says Daniel Ives, managing director of equity research at Wedbush Securities. “It’s a good sign for the music sector.”
UMG flew out of the gate at the start of trading at €25.25 ($29.61). It reached a high of €26.45 ($31.01) but settled back a little lower than its initial bidding at the close of trading. Parent company Vivendi, which retains a 10% share of the music major, saw its shares decline by more than 20% on the Paris exchange.
Aside from Vivendi’s 10%, a group of investors led by Chinese media giant Tencent holds 20%, which it bought in two chunks for approximately $6.6 billion, while hedge fund billionaire Paul Ackerman’s Pershing Square Holdings took a 10% stake in August for about $3.95 billion.
It was Tencent’s announcement in the summer of 2019 that its consortium planned to invest to acquire 10% of UMG that initially prompted Morgan Stanley to value a stand-alone Universal Music at around $30 billion, a reckoning that not only buoyed the company’s worth, but also encouraged competitor Warner Music Group to take itself public in 2020.
In fact, despite a rocky Monday for most U.S. stocks, with the S&P 500 falling by 1.7% for its worse trading day since May 12, news of UMG’s splash lifted Warner Music’s stock by almost 10% in today’s trading, before settling in with an 8.4% gain. Pershing Square benefited, too, as the hedge fund’s value rose by about 5%.
A difficult property market in China, concerns over how the Federal Reserve might react to rises in inflation and employment, the potential of a U.S. government shutdown over a debt ceiling showdown and the ongoing impact of COVID’s Delta variant are the factors soured Wall Street on Monday, but the prospects of a pure-play music investment in an industry that benefits from the robust revenue provided by streaming allowed the music companies not only weather the storm, but actually rise.
Setting the stage for UMG’s debut was a virtual ringing of the gong —Amsterdam’s equivalent of the New York Stock Exchange’s opening bell — by chairman/CEO Lucian Grainge, joined by senior members of UMG’s senior management. Members of the Euronext Amsterdam banged the gong live at that exchange, too, about 15 minutes before trading started.
“Today’s listing marks an exciting milestone in UMG’s storied history, reflecting our position as the world’s leading music-based entertainment company and our deep commitment to our amazing artists, songwriters and partners,” Grainge declared as trading opened. “We offer our thanks to the team at Euronext Amsterdam for their work on this listing and look forward to a great partnership together.”