Universal Music Group (UMG), the global music brand heads for an IPO in September 2021. This follows a decision by its parent company Vivendi, the French media conglomerate, to offload 60% of its stakes in UMG. 1
Competition: Recorded music faces competition from new audio formats like podcast. Real time performance is much sought after these days. This has prompted UMG to foray into new entertainment formats to live up to the competition. It also looks to enhance the global distribution capabilities. This calls for raising additional financial resources.
Cash Crunch: Though UMG’s overall revenues were up 5.1% as of September 2020, its physical sales were down by 10.2%. Hence the company needed to back up its finances with additional resources.2
Rise in costs: There has been a considerable rise in the production costs.
Battle for control: There has been a continuing battle to control the shareholdings of the UMG. In January 2020, Chinese media major Tencent increased their share to 20%. A few hedge-fund billionaires have also built up stake in Vivendi with a view to control UMG. The IPO will lead to consolidation of shareholding. The big stakes in UMG will be limited among Vivendi (20%) Tencent (20%) and Bollore-Frech logistics company (16%) 3
Financial flexibility is essential for businesses to pursue dynamic growth. The reason for UMG to go public also is the same. Investors are waiting to cash in on the UMG’s standing. Liquidity for investors is enhanced since securities can be traded through a public market. But the music fans are worried whether the state of affairs at Universal will be the same as before.
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(1)Enonomist -2021. Universal, the world’s biggest record label,heads for an IPO-June 23,2021
The IPO of Universal Music Group (UMG) is an attempt by its parent company, Vivendi, to spin off UMG as a separate entity. How will this decision impact the financial performance of UMG and the financial performance of Vivendi?