Universal Music shares surge in debut

The world's biggest music label saw its market value soar to $55 billion in Europe's largest listing of the year

Universal Music Group's shares surged more than a third in their stock market debut on Tuesday as investors bet a boom in music streaming still has a long way to run.

The world's biggest music label saw its market value soar to 47 billion euros ($55 billion) in Europe's largest listing of the year.

The company was spun off by France's Vivendi, which handed a 60% stake in Universal to its shareholders. Vivendi saw its market value drop by two thirds to about 12 billion euros ($14.08 billion), according to Refinitiv data, as it refocuses on other media assets such as pay TV brand Canal+.

Big winners from the Amsterdam listing include U.S. hedge fund billionaire William Ackman and China's Tencent, alongside Vivendi's controlling shareholder Vincent Bollore, who are retaining large slices of Universal.

Universal Chairman and CEO Lucian Grainge will also get bonuses linked to the listing that a source close to the company said would amount to at least $140 million.

Universal's shares were trading at 24.97 euros ($29.29) by mid-session trading, up around 35% from their reference price of 18.50 euros ($21.70). Shares in Bollore, which holds 27% of Vivendi, were up 2.4%, while the Amsterdam-listed shares of Ackman's Pershing were up 4%.

At that price, Universal - the biggest of the "big three" record labels - trades at a 25% premium to its only listed competitor, Warner Music, said analyst Matti Littunen of Bernstein. Both compete with Sony Music.

No sign of a European discount here, Littunen said in a note, adding that the stock's performance would reduce pressure to seek a dual U.S. listing for Universal, which is based in Hilversum, Netherlands, but has headquarters in Santa Monica, California.

The strong debut is also a vindication for Ackman, who was forced into an embarrassing U-turn after U.S. regulators blocked his plans to invest into Universal via his special purpose acquisition company (SPAC) in July.

Ackman instead opted to take a 10% stake via his main Pershing Square hedge fund, which is now sitting on a paper gain of more than 30%.

I believe that we're only at the beginning of the next wave of growth as music subscription and ad-supported consumption is scaling globally and has a long runaway ahead, Grainge told Reuters.

Part of Universal's business derives from the rights attached to its huge catalogue, and it also collects royalties for the artists it represents across social media platforms and performance fees whenever their songs are played.

Its flotation carries high stakes for Vivendi, which hopes to rid itself of a conglomerate discount that it believes has weighed on its shares.

Vivendi said last week it was set to purchase another stake in Lagardere, paving the way for a potential full takeover of the Paris Match magazine owner.

Universal has increased sales for six years in a row, with core earnings of 1.36 billion euros ($1.60 billion) in 2020 on revenue of 7.43 billion euros ($8.72 billion). It has forecast revenue growth of at least 10% this year and in the high single digits after that.