Refinitiv Newscasts - Breakout: Universal's rock star debut

Universal

23/09/2021 16:04

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Source: Reuters

Description: The Abba-to-Rob Zombie music label increased in market worth by
nearly $15 bln when it was spun off by Vivendi this week. It's a sign of just
how undervalued the French conglomerate's assets are by investors, Liam Proud
explains.
Short Link: https://refini.tv/3i0rPap

Video Transcript:

You could take a very interesting lesson from this. So, it’s worked.
They’ve all made money from the spin off. And now, Vivendi, the parent
group, has this kind of strange status as like a stable for these odd, kind of
old media assets and trades at a huge discount to the sum of its parts. And I
reckon if you add them all up and you include the cash that’s on
Vivendi’s balance sheet, really, the group should be worth about EUR20
billion or so.

Welcome to another Breakout with Breakingviews brought to you by PGIM. I'm Rob
Cox in the United States and I'm talking to Liam Proud in London about
Vivendi’s spin-off of its Universal Music business. Now, Liam, this was
kind of a hell of a deal. I mean, the stock, what? It popped up like 40% on
the listing?

Yeah. I mean, it's sort of, it wasn't a formal IPO. It was like an IPO priced
--. I think the pop is like maybe the odd point. I mean, basically, what
happened was it was valued for a very long time, at somewhere around the EUR30
billion mark. It's the world's biggest music label. Tencent bought a chunk of
it, Bill Ackman bought a chunk of it, the hedge fund guy. And then it floated
instantly, it spun off and listed in Amsterdam and instantly shot up to about
EUR45 billion to EUR46 billion, so $150 billion, which is quite a big jump.

What does that tell us about the parent company, Vivendi, which is kind of a
conglomerate of media assets. I guess that suggests that this thing was really
undervalued. I wonder if other pieces of that empire are undervalued.

Yeah. So, the context here is really important. So, Vivendi’s a
Paris-based, kind of media conglomerate. Universal was its biggest asset. I
mean it's owned Universal for a very long time. And the parent group of
Vivendi is controlled by a guy called Vincent Bollore, who is this sort of
tycoon with lots of thinkers and lots of media advise. Part of the reason that
he did this with Universal was to release the value that was trapped in the
group, which investors have been talking for a long time. Vivendi European
activist investors, for example, they all had a look at this company, Vivendi.
And said, boy, they've got this incredible asset Universal Music, which is
probably worth more than the whole group, Vivendi. So, eventually Bollore got
the message. He said, look, I can enrich myself. I can enrich other
shareholders by spinning this thing off. And now we’ve got these two
things, Vivendi and the listed Universal, they’re worth more than the one
thing, you can say. You could take a very interesting lesson from this. So,
it’s worked. They’ve all made money from the spin off. And now,
Vivendi, the parent group, has this kind of strange status as like a stable
for these odd, kind of old media assets and trades at a huge discount to the
sum of its parts. So some of these assets are Canal+, which is the big kind of
French pay TV group. Havas, which is a well-known advertising agency, various
publishing assets. And I reckon if you add them all up and you include the
cash that’s on Vivendi’s balance sheet, really, the group should be
worth about EUR20 billion or so. And this is probably valued at somewhere
between EUR11 billion and EUR12 billion.

Oh wow, that's a huge discount.

Yeah. So, there's about EUR9 billion to EUR10 billion of missing value,
depending on where you're looking at the screen, it does kind of bump around a
bit. So, I say, why tolerate that? I mean, you didn't tolerate that forever
with Universal. It worked. Now Universal’s worth loads of money. But
what's happening is that they picked up the discount and just moved it on to
Vivendi while Universal has shifted over there, you know what I mean. So, why
not try the same trick? Now there’s an obvious kind of betting, obvious
assets that he has, which you could either sell, get some cashflow, give that
back to shareholders, or just give stakes straight to the shareholders like
you did in Universal. I mean, my first pick would be Telecom Italia, which is
the national network for Italy. They had a run at the thing. Elliott was
involved. There’s a really good story that Breakingviews was all over a
few years ago. He still owes a EUR1.3 billion stake and has no relevance to
the rest of the empire, in my opinion. Get rid of it, use the cash. Reward
shareholders could be a quite straightforward option.

Of course, someone who did spot the undervalued asset within the Vivendi
portfolio was the New York hedge fund manager Bill Ackman. He created this
transaction that was basically designed to buy a stake of Universal ahead of
the listing, which now that we see the stock went up 40%. It was a heck of a
smart idea, but it wasn't an idea he was able to take to fruition though.

Yeah, it's sort of a sad story. I mean, I know Bill Ackman is a very rich man.
He had this idea, where he raised the SPAC. At that time, I think it's one of
the biggest SPACs ever, special purpose acquisition company, a kind of like a
blank check vehicle. And rather than do the normal SPAC thing where you take a
private company public, he'd come up with this quite unusual structure where
he was going to do a deal with Bollore and Vivendi, where he would buy 10% of
Universal, in behalf of his SPAC investors. And then when they went public,
his SPAC investors would own 10% of this stake. We were quite critical of the
general structure of the deal. A lot of people were. The SEC, in particular,
are more important in our opinion. The SEC has said that they like this. So
the deal in its original form didn’t go through and it’s been quite
embarrassing for Bill Ackman. However, he is still going to make a lot of
money. So he didn't do the deal for a SPAC structure. He just did that deal on
the balance sheet. It was only hedge funds in the end. So, he's got a
London-listed vehicle Pershing Square Holdings. There's a bunch of affiliated
funds. And he basically bought a stake himself as a simple way of saying,
instead of doing it-

So, he's done fine. It’s the SPAC investors who lost out, I guess.

Totally. Their money locked up for a load of time, and now they're probably
just going to get their money back at face value. They're probably not making
any money.

Alright. Well, thank you, Liam, for that and we'll be back with another
Breakout from Breakingviews soon