Swap Stakes Agreement Between Tencent & Spotify in Their Music Businesses

Swap Stakes Agreement Between Tencent & Spotify in Their Music Businesses

This recent collaboration will allow the two companies, Tencent Music Entertainment and Spotify, to make investments in the music businesses that they own.

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The investment splurge that Tencent is experiencing overseas progress following confirmation by the company of their agreement with Spotify. This will allow the duo to make investments in the music businesses that they own.
The subsidiary of Tencent called Tencent Music Entertainment (also known as TME) that is charged with the management of karaoke and music streaming services is set to make a minority investment in the popular Spotify. It will do this through new shares but the investment is undisclosed. On the other hand, Spotify is also set to purchase an undisclosed stake in Tencent Music Entertainment. In addition, Tencent will make a personal investment in Spotify through the purchase of secondary shares from already existing backers.
The two companies mentioned in a joint statement that the transactions will provide Spotify with a minority stake in the profitable TME. Furthermore, TME and Tencent will both have minority stakes in the music business of Spotify.
The Initial Public Offering by Spotify is highly anticipated. There is an indication that it might happen very soon i.e. next year. However, there is a possibility that that company might prefer going the direct listing route. This means that it would go public but with an absence of an IPO. In plain terms, it is people inside the company that will trade its shares to the lucrative stock market rather than the company itself.
It is not clear as to whether the agreement will affect the possibility of a direct listing happening.
Tencent grew to become the very first company in Asia to be worth $500 billion through its market cap. This is mainly by the fact that it has growing business interests in China. These interests comprise of the leading messaging app in China called WeChat and PC-mobile games business.
However, the firm has significantly spread its wings past the Chinese borders via investments. The deals that Tencent has with 2 public businesses based in the U.S called Snapchat and Tesla are the highlights. It has also pumped money into Ola (Uber rival), Practo (health portal), Hike (messaging app) and Flipkart (unicorns based in India). Other deals that were struck at an earlier stage include asteroid mining, lunar drones, flying cars, China Literature and Sogou. The previous month saw the last two investments go public.
It has been speculated that Honk Kong is the IPO location of TME, this will be a valuation of $10 billion. The listing of TME would be after successful IPOs from Sogou (search engine), Yixin and China Literature (e-book subsidiary).
The two companies have obviously been in talks for quite a while. In fact, there were reports at the beginning of the year of such talks but they collapsed. There was a report last week by the Wall Street Journal of the 2 companies being in talks to exchange some equity prior to the announcement today. The publication purported that both companies would each have a stake that does not exceed 10%.
The alliance by Spotify and Tencent comes just one day following the report by Bloomberg that Youtube has plans to unveil a music streaming service in 2018. The streaming service is said to have secured Warner’s support. Universal and Sony are still in talks.

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