The $6.4 Billion Bid Changing the Music Industry: Why UMG Is Selling Off Its Spotify Stake

Years after making a major investment in the streaming service, Universal Music Group said this week that it would monetize its Spotify stake by selling off half of its shares.

The new strategy will help the company fund its buyback program and potentially boost stock prices. In a recent earnings call, the company confirmed that its first-quarter revenue came in at about 2.9 billion euros, or $3.3 billion, year over year.

“We delivered a solid quarter of growth in our core businesses, complemented by our strategic development and investment in fast-growing areas of the industry,” says Lucian Grainge, Chief Executive Officer of UMG.

“We continue to build the most successful music company in history by attracting the world’s top talent, engaging fans globally, and delivering long-term value for stakeholders. Central to that mission is fostering an environment that protects artists and songwriters, champions human creativity, and embraces innovation at a pivotal moment for our industry.”

Spotify at Stake

UMG was recently offered a $6.4 billion bid for the company by hedge fund manager Bill Ackman. The bid would revitalize the company’s stock price and bring the Netherlands-based music group back to America. During the earnings call, UMG stated it felt its share price was undervalued relative to its business performance and prospects.

Spotify’s first quarter results, which came out a day prior, noted that the company was holding up strong with a revenue rise of 8% from last year to 4.5 billion euros, $5.3 billion. The Swedish company also noted that monthly active users rose 12% year-on-year to 761 million. Despite strong earnings, its stock dropped 12%. UMG will continue to shed its stake from a €500 million share buyback to €1 billion.

Matt Ellis, UMG’s CFO, said, “Against the backdrop of a healthy industry, we are consistently driving sustained revenue growth through our multi-faceted strategy, while continuing to expand EBITDA and reinvest for the future. In addition, the important steps we are announcing today to increase our share buyback authorization and monetize a portion of our equity stake in Spotify will lead to enhanced shareholder value while maintaining the flexibility the Company requires to drive further success.”

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