Tencent In Talks To Buy Warner Music Stake For $200M


Image: Warner Music Group

The Wall Street Journal announced that Tencent Holdings Ltd. has been wanting to buy a stake in Warner Music Group as part of the initial public offering for $200 million. This came after where Tencent purchased a total worth of $3 billion of stake in Universal Music Group. 

According to Rolling Stone's article, Where the Music Business Is Going in 2020, many major labels show great interest in cashing in on their interests in the highlight of the coronavirus. 

Rolling Stones states, "On December 31, a consortium led by Tencent Holdings Ltd — one of China’s biggest tech/media conglomerates, with a $480 billion market cap — announced that it had signed a shareholders’ agreement to acquire 10% of VIvendi’s Universal Music Group — the world’s largest music rights-holder. The $3 billion deal values Universal at $33.4 billion, some 30X the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) profit figure UMG recorded in 2018. Universal’s biggest rivals, Sony Music Group and Warner Music Group, will now presumably be able to attract comparative multiples in the M&A market, should their owners wish to “release some value.”

Check this for a stat that speaks of music’s escalating worth: WMG was wholly acquired by Len Blavatnik for $3.3 billion in 2011 — a smaller number than that Tencent just agreed to pay for a mere 10% of Universal. WMG judges its annual financial performance in terms of OIBDA (Operating Income Before Depreciation and Amortization),  a similar measure to EBITDA. In WMG’s 2019 fiscal year, its OIBDA came out at $625 million. With a 30X multiple applied, this would result in a valuation of $18.8 billion. If Len Blavatnik could command this price for Warner in 2020, it would mean he would need to sell just 18% of his music company to a minority bidder in order to recoup the initial investment he made in 2011.

Who might such a hypothetical minority bidder be? Don’t count out Tencent, which already owns stakes elsewhere in music (including in Spotify and India’s Gaana). And in the gaming world, Tencent bought a 40% holding in Epic Games, owner of Fortnite, for a reported $330 million in 2012; this, despite also owning a 93% state in League Of Legends developer Riot Games. Already in 2020, Tencent has acquired a position in another games developer, Japan’s Platinum Games (maker of the Bayonetta series) for an undisclosed fee."

Tencent currently has a 7.5% stake in Spotify, and which in hopes that their deals with major record companies will help the streaming reach into the U.S. and other major countries that do not have access to it yet.