Universal Music is testing the waters with investors for a possible €1 billion bond issue, split into two tranches. This was reported by the Bloomberg agency, citing sources close to the facts, according to which the operation is scheduled for Monday 8 June. The decision to resort to the bond market responds to the need to refinance existing debt and cover expenses related to the group’s general corporate activities.
The refinancing plan
According to data collected by Bloomberg, the record company needs to manage some short and medium-term financial deadlines. Earlier this year, the group obtained a one billion euro bridge loan which will expire at the end of July. Added to this is a 500 million euro bond with maturity set in 2027. The operation of 8 June serves to give greater stability to the accounts of the music giant.
The structure of the offer
The issue on the bond market was structured in two distinct parts to attract different types of investors. The first tranche has a duration of four years, while the second extends over a period of ten years. Each of the two tranches provides for an amount of 500 million euros, so as to reach the overall figure of one billion. Official details should be confirmed in the next few hours.
Pershing Square’s farewell
The financial move comes at a time of transition in the company’s ownership structure. Recently, in fact, the Pershing Square fund, managed by American billionaire Bill Ackman, sold its entire stake in Universal Music, which had an estimated value of 1.42 billion euros. The exit of the fund follows a phase of strong tensions between the investor and the record company’s top management over control of the company.
Takeover offer rejected
Prior to the financial divestment, Bill Ackman had submitted a formal proposal to take over the entire company. However, Universal Music’s board of directors rejected the takeover offer, explaining that the proposed figure substantially and significantly underestimated the group’s market value. Hence the major’s choice to opt for autonomy and refinancing through bonds.
A complex moment
It is not a simple time for the American corporation. The growth in revenues from premium subscriptions – i.e. Universal artists on various platforms such as Amazon Music or Spotify – has reduced (dropped at rates lower than expected compared to the post-pandemic golden years) and the contribution of free advertising-supported streaming has also contracted, penalized by the shift of users towards lower monetization video platforms such as TikTok.
New sources of revenue
Added to this are the accounting fluctuations linked to the major’s shareholdings in Spotify and Tencent Music: in the most recent financial statement, the devaluation of these assets caused a drop in net profit attributable to shareholders of over 26%, triggering strong corrections in the stock on the stock market despite overall revenues holding up.
To compensate for the saturation of traditional streaming, the record giant is refocusing its strategy on monetizing “superfans” through merchandising, exclusive experiences and a more rigid fight against piracy linked to artificial intelligence.