Tencent taps GIC, sovereign funds to rescue Universal Music deal

A pedestrian walks past Tencent Holdings Ltd.'s new under-construction headquarters in Shenzhen, China, on Monday, Aug. 22, 2016. Photographer: Qilai Shen/Bloomberg

Tencent Holdings Ltd has turned to Singapore’s state investor GIC and other sovereign funds to help rescue a deal to buy a stake in Vivendi’s Universal Music after major buyout funds quit the negotiating table, sources said.

Vivendi, controlled by billionaire Vincent Bollore, had initially revealed talks with Tencent in August to sell part of Universal Music Group (UMG), the music label of artists such as Lady Gaga, the Beatles, Taylor Swift, Drake and Kendrick Lamar.

Bollore is seeking to cash in on the growing public demand for subscription and ad-based music streaming services, which have propelled UMG’s profits over the last four years.

The deal would also mark one of the biggest investments by a Chinese company into a major European media business at a time when Chinese firms have slowed down deal-making in the West.

But for the past six months Tencent has struggled to find the money to complete the transaction, raising concerns that negotiations with Vivendi could fall through, the sources said, requesting anonymity as discussions are confidential.

U.S. private equity funds KKR and Hellman & Friedman walked away from negotiations last month, the sources said, forcing Singapore’s GIC to tap a series of sovereign wealth funds to rescue the transaction.

Under the latest plan – still being negotiated with Vivendi – the Chinese tech group would take a 20% to 30% stake in the music label via a consortium of state investors that would stump up the cash, two sources said.

Talks between Tencent and sovereign wealth investors have gained traction in recent weeks and the parties are working flat out to finalise the deal by the end of the year, the sources said.

Yet the signing may still slip to early January, one of the sources said, as the bidding consortium consists of several sovereign investors who may need longer to win the final blessing from respective governments.

Vivendi, Tencent and GIC declined to comment.

If successful the tie-up would build on a partnership struck two years ago, under which Tencent can license Universal‘s music for distribution over its streaming platforms.

The long-awaited deal would also boost morale among Chinese deal-makers who have had one of the worst years on record for China outbound M&A, with activity plunging to a 10-year low amid trade tensions between the United States and China, Refinitiv data shows.

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Vivendi initially unveiled its discussions with Tencent on Aug. 6 saying it would sell a 10% stake in UMG, a deal that valued the music business at about 30 billion euros ($33.07 billion).

As part of the deal, Tencent had an option to increase its stake to up to 20%.

But since August the Chinese group has scrambled to team up with international investors that could share the financing burden, the sources said.

“It was a relentless search,” one of the sources said. “Most investors were not comfortable with the 30 billion euro valuation demanded by Vivendi.”

Tencent, led by Chinese tycoon Pony Ma, pinned its hopes on U.S. buyout funds KKR and Hellman & Friedman but both funds wanted a bigger stake of around 30% and more governance control over the music label, which Vivendi was reluctant to concede, the sources said.

KKR declined to comment while Hellman & Friedman was not immediately available for comment.

Tencent’s music unit already owns exclusive rights to sub-license Universal‘s content to other providers in China.

But controlling a direct stake in the music label would give it more ammunition to compete with China’s privately held ByteDance, whose popular social media, video sharing and music sites include Toutiao and TikTok.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.