A round up of some of the week’s most significant corporate events and news stories.
Spotify and SoundCloud in talks to create ‘superpower’
Spotify is in “advanced talks” to buy Berlin-based music streaming start-up SoundCloud, the Financial Times reported this week. SoundCloud’s 200m-strong community, added to Spotify’s 100m, which includes 40m paying subscribers, would dwarf their biggest US rival, Apple Music, which has just 17m paying customers for its service. Spotify declined to comment while SoundCloud did not respond to repeated requests, writes Madhumita Murgia.
Spotify in advanced talks to buy SoundCloud
Spotify has 40m paid users and a total user base of 100m. About 200m people regularly use SoundCloud’s service. But barely any pay.
“If the deal closes, we have a European superpower in digital music,” said analyst Mark Mulligan, founder of Midia Research. Neither of the two companies is profitable, but Spotify is getting its ducks in a row for an IPO in the next year, by boosting its paid subscriber base and diversifying content through video and podcasts.
SoundCloud’s biggest asset for its rival is the community of creators who built it. Many upload content to the site, which has an extensive catalogue of original music, such as mixes, hip-hop, Electronic Dance Music and DJ sets.
Although overall streaming revenues rose by 45.2 per cent in the past year, independent online music companies are struggling to survive, driven to consolidation by being outspent by US tech giants such as Apple and Amazon. Tidal, partly owned by Jay Z, is rumoured to be in acquisition talks with Apple, while US music service Pandora purchased Rdio’s intellectual property for $75m last year.
SoundCloud last reported a turnover of €17.4m and an operating loss of €39m in 2014. The start-up has not reported user numbers or business health since then, leading to speculation its popularity may be waning.
Axel Springer head calls for closer tech and media ties
Mathias Döpfner, chief executive of German publisher Axel Springer, warned this week that many traditional media companies will die, unless they reach agreement with the dominant technology groups, writes David Bond.
In an interview with the Financial Times, Mr Döpfner said he was encouraged by the European Commission’s new rules on copyright, which will give news publishers the right to demand a fee from internet platforms such as Google and Facebook.
Axel Springer chief on outlook for newspapers
The FT’s David Bond travels to Axel Springer’s imposing Berlin headquarters to speak to its chief executive Mathias Döpfner about how the industry is battling digital disruption.
But he added the move had to be accompanied by a shift in attitude from the Silicon Valley groups.
“If there is not a real, sufficient and big business model on the search-driven side . . . and there is no business model at all on the social [media] side, the number of content producers will deteriorate fast,” he said.
“You will have a monopoly of content distribution that will be mainly driven by user-generated content, and by professional content by commercially interested players.
“You will have a total mix-up of rumours and facts — a pretty traumatic scenario of information or propaganda. It will be very painful for democracies.”
As the head of Europe’s largest publisher, Mr Döpfner has been an outspoken advocate of new legislation that will protect content producers.
In 2014, he wrote an open letter to Google chairman Eric Schmidt, admitting he was “afraid” of Google and comparing the fight between old and new media to David versus Goliath.
Axel Springer has been investing heavily in digital start-ups and targeting new media acquisitions in the US, as it tries to reduce its reliance on its traditional newspaper businesses and the European market.
Dalian Wanda eyes studio with the Golden Globes
Dalian Wanda’s appetite for US entertainment assets shows little sign of waning. The group is now looking to acquire the studio that stages the Golden Globe Awards and American Music Awards — both popular with Chinese audiences — for a reported $1bn, write FT reporters.
Eldridge Industries, owner of Santa Monica-based Dick Clark Productions, said on Tuesday that it had agreed to enter “exclusive talks” with Wanda Culture Industry — a unit of the conglomerate — “with the shared goal of finalising a mutually satisfactory transaction”.
The news came days after the announcement that Wanda, led by China’s richest man, Wang Jianlin, had agreed a deal with Sony Pictures Entertainment to co-invest in films and distribute them across Wanda’s expanding network of cinemas, soon to include 150 IMAX screens in the next six years.
Wanda, which has assets from property to football and theme parks, has been steadily expanding its reach into US entertainment since 2012, when it snapped up AMC, the world’s largest cinema owner-operator. This year AMC has agreed to buy the UK’s Odeon & UCI Cinemas Group for about £900m and has offered about $1.2bn to acquire Carmike Cinemas of the US. Wanda also has a controlling stake in Legendary Pictures, the producer of the Godzilla and Warcraft films.
Chinese investors flood into Hollywood
Flurry of deals involving Tencent, Dalian Wanda and others reflects new interest in content
While Chinese entertainment groups seek out the prestige and expertise of US film studios, the deals give Hollywood a route to China’s swelling audiences of newly affluent consumers. Should the Dick Clark Productions deal go ahead, it would give Wanda access to television production.
However, US lawmakers have expressed concerns over China’s incursion into the US film industry, with Republicans calling for greater scrutiny of Chinese investment in the industry.
But China offers huge potential for growth. According to EntGroup, an industry research company, China accounts for 17.8 per cent of global box office revenue making it the second biggest market in the world behind the US, while cinema visits hit a record high 1.26bn last year, five times more than in 2010.
Reuters reported that the price tag for Dick Clark Productions was $1bn, citing an unnamed source. The company was purchased by investment group Guggenheim Partners for $380m in 2012. Wanda declined to comment on the talks.
● Related Lex note: China entertainment — Wanda-lust
Shareholders toast success of $79bn ‘Megabrew’ deal
The drinks were on Anheuser-Busch InBev this week after the Belgian brewer secured a decisive vote from shareholders in London-listed SABMiller in favour of its £79bn takeover, writes Scheherazade Daneshkhu.
The deal, which is expected to close on October 10, is the UK’s largest takeover and the third-largest M&A transaction in corporate history.
The combination of the world’s two largest beer producers represents the culmination of Brazilian billionaire Jorge Paulo Lemann’s “Dream Big” mantra.
Mr Lemann is the largest individual shareholder in AB InBev and the driving force behind its growth from Brahma, a domestic Brazilian brand, into a global brewer selling one in four beers and taking 45 per cent of the industry’s profits.
AB InBev’s brands include Budweiser, Stella Artois, Beck’s and Corona, to which it will add SAB’s Castle Lager, Victoria Bitter and Aguila. More significantly, the acquisition, gives AB InBev access to markets in Africa, the world’s fastest-growing beer market in which it had virtually no presence.
SABMiller/AB InBev: arb luck
Currency movements will benefit some investors. Get over it
SAB shareholders, meeting in London on Wednesday, voted 95.5 per cent in favour of AB InBev’s £45-a-share cash offer.
SAB’s two largest investors — Altria, the US tobacco company and BevCo, the family investment vehicle of Colombia’s Santo Domingo family — were excluded from the vote following a UK High Court ruling last month.
The two, which own a combined 41 per cent of SAB, had already accepted AB InBev’s partial share alternative of 0.483969 in AB InBev shares and £4.66 in cash for each SAB share.
The takeover will mark the end of SAB’s 120-years history as an independent company and its own remarkable transformation as the former South African Breweries into the world’s second-largest brewer.
“SAB has been an exceptional investment,” said Trevor Stirling, analyst at Bernstein. “Over the last 10 years, SAB has returned over 500 per cent — light years ahead of the MSCI Europe index at 34 per cent.”
StanChart faces probe over Maxpower bribery claims
Standard Chartered is back in the crosshairs of the US Department of Justice — the bank acknowledged this week that it is facing a probe into allegations of bribery at an Indonesian power station company that the lender controls, writes Martin Arnold.
The DoJ is investigating whether bribes allegedly paid by Maxpower Group between 2012 and 2015 to Indonesian government officials violated the Foreign Corrupt Practices Act.
The investigation risks reopening the deferred prosecution agreement (DPA) signed by the UK-listed bank four years ago that averted US criminal charges for sanction breaches.
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If the bank is found to have broken US law in the period since signing that agreement, it could face extra punishments, including having the length of its DPA extended from the end of 2017 or even a criminal prosecution for the sanction breaches.
The bank said in a statement that it “takes very seriously allegations of impropriety in any of our private equity investments”, adding that it had “proactively referred this matter to the appropriate authorities and have conducted our own review”. The DoJ declined to comment.
After the discovery of the alleged bribery last year, StanChart removed Maxpower’s founders from its board and installed members of its own private equity team as directors.
The bank also self-reported the issue to the DoJ and regulators in the UK, US and Singapore, a factor that could work in the bank’s favour, according to people familiar with the probe.
● Related Lombard column: Standard Chartered should freeze out its buyout boys