February 18, 2019 / 1:57 PM / 3 months ago

Breakingviews - Italian grudge may steer Vivendi’s big M&A mandate

Vincent Bollore, Chairman of media group Vivendi, attends the company's shareholders meeting in Paris, France, April 25, 2017.

PARIS (Reuters Breakingviews) - “It’s just business” may be difficult for Vincent Bolloré to utter. Vivendi, the media group he controls, is sore about the work JPMorgan did with activist investor Elliott Advisors in last year’s Telecom Italia saga. The grudge may rear its head in one of the biggest European deals of 2019.

Vivendi is choosing a half-dozen firms to handle the sale of up to 50 percent of Universal Music Group. The potential M&A bragging rights have global and French banks jockeying for a position. Who’ll get it has become a parlour game in Parisian financial circles - with an odd twist.

JPMorgan Cazenove’s researchers lead the pack in valuing Taylor Swift’s music label. In a report last week, media analyst Daniel Kerven described Universal Music Group as “a unique asset – undermonetised, must-have, global content that is strategic to the tech giants and can’t be replicated”. He pegged Universal Music Group’s fair value at 44 billion euros ($50 billion).

That’s higher than rival estimates. Deutsche Bank put it at 29 billion euros; Goldman Sachs at 35 billion euros; Exane BNP Paribas at 25 billion euros. Though equity research is independent from investment banking, these valuations often influence the way companies select advisers.

On that basis, Vivendi should be overjoyed with JPMorgan. Yet it’s not, according to people with direct knowledge of the matter. Last April the New York bank’s capital markets arm arranged a derivatives transaction to help Elliott acquire 8.8 percent of Telecom Italia, while reducing the position’s volatility. This has Vivendi fuming, as it’s in a battle with Elliott over strategy, management and the board of the Italian group, in which it owns 24 percent. 

Does this mean JPMorgan’s rivals can count on its exclusion from the deal? Perhaps. But the U.S. group may find some consolation. As a 26 percent shareholder, Bolloré will probably be more influential than any banker, and, with so many peers involved, the fees may be minimal. Moreover, convincing Vivendi that Universal Music Group is worth $50 billion isn’t the challenge. Getting Alibaba, Tencent or Apple to that figure is what matters. Advising an acquirer, rather than Vivendi, could also open the door to higher fees.

Vivendi may want to punish Jamie Dimon’s bank for working with activists. But if JPMorgan manages to bring in a big fish to buy a slice of Universal Music Group, at a top price, no harm done.

Breakingviews

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