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In December 2024 we introduced a new position in Vivendi. At the time, Vivendi had just emerged from a process in which the historic sprawling media conglomerate had just split itself into four separately listed business: Canal+, Havas, Louis Hachette and Vivendi.

The last piece – Vivendi – remained home to a 10% listed stake in Universal Music Group (“UMG”), which accounted for c.90% of NAV, as well as a small collection of other (almost entirely) listed assets, and net debt.

We started to build a position in December 2024 on the day of the split and continued to add to the position throughout 2025 such that at the start of July, Vivendi was our fourth largest position and a 6.6% weight.

In many ways, Vivendi can be thought of as a quintessential AVI stock: 1) through UMG it offered exposure to a high quality and growing business, where we thought the prospects for NAV growth were appealing; 2) it traded at an inordinately wide discount of close to 50%; 3) although uncertain, there were potential catalysts for the discount to narrow.

In July 2025 the AMF ruled that Bollore is deemed to have effective control of Vivendi and as such is obligated to make a mandatory offer within 6 months. This follows an April 2025 court ruling that asked the AMF to revisit the case and the circumstances of the Vivendi split in 2024. In turn Vivendi and Bollore are currently appealing the Court of Cassation, and Bollore has also appealed the AMF ruling itself. It is our understanding that the appeals processes should run until December 2025 and that a dual-track process of cooperation with the AMF will occur in the interim.

The AMF ruling states that, in the event of an offer, Bollore must offer a “fair price”.  Since December 2024 Vivendi has published its own NAV – although – rather comically – we note no such figure was reported in their half year results published at the end of July 2025. The asset value is fairly indisputable, with the NAV being nearly entirely listed, and Gameloft being the only unlisted asset, for which they report(ed) a carrying value of €234m / 5% of NAV).

There are, however, two areas of uncertainty: 1) how to treat the central corporate costs (which run at ~€85m annually), 2) whether or not a “fair price” should incorporate a fair/holding company discount.

We do not intend to profess any great precision into exactly how these two issues will be treated, but instead highlight the 2017 at-NAV offer from the Arnault family for Christian Dior SE as a case study for the AMF ensuring fair value is offered.

Nonetheless, the prospects for a buyout offer are meaningfully higher than they were a month ago. This has been in part at least reflected in the narrowing of the discount – with the shares now trading at an a low 30s – discount to our pre-corp cost NAV. At this level we continue to see meaningful upside in the discount.

Turning to the NAV side of the equation, UMG shares have been weak of late following the publication of results at the end of July and the announcement that Cyrille Bollore is to step down from the board. This has pushed the stock -14% since from a recent late July peak to the time of writing (4^th August).

In terms of Q2 results these were something of a mixed bag. On the positive side, UMG has demonstrated 8.9% Subscription growth in H1, with only a modest tailwind from price rises. We continue to believe that the market is underestimating the extent to which this will further accelerate in 2026 under so-called Streaming 2.0 – with a guaranteed step-up in minimum per subscriber fees, and increased tiering of pricing allowing for greater stratification in spending between average consumers and those with propensity to spend more. All told, we believe UMG is well positioned to benefit from the continued (re) monetisation of music supporting strong long-term topline growth.

On the other hand, how this translates into margins and free cash flow is causing more debate. Margins have not expanded as much as one would have expected with 2025 adjusted EBITDA margins likely to be ~22.8% vs. consensus expectations of ~25.0% at the time of the IPO. As demonstrated in the most recent results, incremental margins have remained subdued in the high 20s and operational leverage has been held back. Part of this is mix effect, but there is also some investor scepticism as to how creative and capitalist traditions of UMG and financial markets meld, and the extent to which management are disciplined on cost and focus on the share price (which wasn’t helped by Lucien Grainge’s post prospectus compensation package).

The free cash flow picture also remains muddied, both in terms of Royalty Advances and Catalogue Investments. In H1 we with an exceptionally large (€377m) Royalty Advance Net of Recoupments outflow in H1 and guidance that this will not normalise to a lower FY figure (as was the case last year). The bears would argue that this is indicative of the pendulum of power swinging in the favour of artists, who are negotiating a harder and better settlement in what is a relatively zero-sum game. The more bullish interpretation is that UMG is simply fuelling future growth and higher advances today result in higher recoupments / earnings / free cash flow in the future. The truth probably lies somewhere between the two and we believe management can do a better job explaining this, as well as more generally improving communication and disclosure with the market. Indeed, we some analogies between UMG – still earlier in its life as a listed company, leading in a nascent asset class – and how the Alternative Asset Managers were misunderstood a decade ago.

UMG shares are currently only a little above where they closed following the September 2021 IPO (whilst the MSCI Europe has returned >50% and Spotify >200%). Indeed, the current enterprise value (€44bn) is only ~25% higher than the one (€35bn) at which Pershing Square invested in 2021, despite sales and EBITDA being ~44% and ~77% higher. Net of its €4.5bn in Spotify and other listed equities, UMG has a core equity value of just €22 per share, or a just under 20x 2026 earnings. We believe this to be good value for approximately a 30% share of global music, at a time when the industry is being transformed, with better monetisation and improving earnings quality.

The combination of UMG’s attractiveness, and the near-term potential catalyst in Vivendi’s discount, make us optimistic for prospective returns.

In December 2024 Vivendi – historic sprawling media conglomerate – split itself into four separately listed business: Canal+, Havas, Louis Hachette and Vivendi. The fund had owned a small position in Vivendi, on the premise that the proposed split had the potential to unlock value, however this excitement was tempered by our lack of enthusiasm for the Canal+, Havas and Louis Hachette.

The last piece – Vivendi – remained home to a 10% listed stake in Universal Music Group (“UMG”), which accounted for c.90% of NAV, as well as a small collection of other (almost entirely) listed assets, and net debt.

We started to increase the position in Vivendi in December 2024 on the day of the split and continued to add to the position throughout 2025 such that at the start of July, Vivendi was the second largest position and a 6.9% weight.

In many ways, Vivendi can be thought of as a quintessential AVI stock: 1) through UMG it offered exposure to a high quality and growing business, where we thought the prospects for NAV growth were appealing; 2) it traded at an inordinately wide discount of close to 50%; 3) although uncertain, there were potential catalysts for the discount to narrow.

In July 2025 the AMF ruled that Bollore is deemed to have effective control of Vivendi and as such is obligated to make a mandatory offer within 6 months. This follows an April 2025 court ruling that asked the AMF to revisit the case and the circumstances of the Vivendi split in 2024. In turn Vivendi and Bollore are currently appealing the Court of Cassation, and Bollore has also appealed the AMF ruling itself. It is our understanding that the appeals processes should run until December 2025 and that a dual-track process of cooperation with the AMF will occur in the interim.

The AMF ruling states that, in the event of an offer, Bollore must offer a “fair price”.  Since December 2024 Vivendi has published its own NAV – although – rather comically – we note no such figure was reported in their half year results published at the end of July 2025. The asset value is fairly indisputable, with the NAV being nearly entirely listed, and Gameloft being the only unlisted asset, for which they report(ed) a carrying value of €234m / 5% of NAV).

There are, however, two areas of uncertainty: 1) how to treat the central corporate costs (which run at ~€85m annually), 2) whether or not a “fair price” should incorporate a fair/holding company discount.

We do not intend to profess any great precision into exactly how these two issues will be treated, but instead highlight the 2017 at-NAV offer from the Arnault family for Christian Dior SE as a case study for the AMF ensuring fair value is offered.

Nonetheless, the prospects for a buyout offer are meaningfully higher than they were a month ago. This has been in part at least reflected in the narrowing of the discount – with the shares now trading at an a low 30s – discount to our pre-corp cost NAV. At this level we continue to see meaningful upside in the discount.

Turning to the NAV side of the equation, UMG shares have been weak of late following the publication of results at the end of July and the announcement that Cyrille Bollore is to step down from the board. This has pushed the stock -14% since from a recent late July peak to the time of writing (4th August).

In terms of Q2 results these were something of a mixed bag. On the positive side, UMG has demonstrated 8.9% Subscription growth in H1, with only a modest tailwind from price rises. We continue to believe that the market is underestimating the extent to which this will further accelerate in 2026 under so-called Streaming 2.0 – with a guaranteed step-up in minimum per subscriber fees, and increased tiering of pricing allowing for greater stratification in spending between average consumers and those with propensity to spend more. All told, we believe UMG is well positioned to benefit from the continued (re) monetisation of music supporting strong long-term topline growth.

On the other hand, how this translates into margins and free cash flow is causing more debate. Margins have not expanded as much as one would have expected with 2025 adjusted EBITDA margins likely to be ~22.8% vs. consensus expectations of ~25.0% at the time of the IPO. As demonstrated in the most recent results, incremental margins have remained subdued in the high 20s and operational leverage has been held back. Part of this is mix effect, but there is also some investor scepticism as to how creative and capitalist traditions of UMG and financial markets meld, and the extent to which management are disciplined on cost and focus on the share price (which wasn’t helped by Lucien Grainge’s post prospectus compensation package).

The free cash flow picture also remains muddied, both in terms of Royalty Advances and Catalogue Investments. In H1 we with an exceptionally large (€377m) Royalty Advance Net of Recoupments outflow in H1 and guidance that this will not normalise to a lower FY figure (as was the case last year). The bears would argue that this is indicative of the pendulum of power swinging in the favour of artists, who are negotiating a harder and better settlement in what is a relatively zero-sum game. The more bullish interpretation is that UMG is simply fuelling future growth and higher advances today result in higher recoupments / earnings / free cash flow in the future. The truth probably lies somewhere between the two and we believe management can do a better job explaining this, as well as more generally improving communication and disclosure with the market. Indeed, we some analogies between UMG – still earlier in its life as a listed company, leading in a nascent asset class – and how the Alternative Asset Managers were misunderstood a decade ago.

UMG shares are currently only a little above where they closed following the September 2021 IPO (whilst the MSCI Europe has returned >50% and Spotify >200%). Indeed, the current enterprise value (€44bn) is only ~25% higher than the one (€35bn) at which Pershing Square invested in 2021, despite sales and EBITDA being ~44% and ~77% higher. Net of its €4.5bn in Spotify and other listed equities, UMG has a core equity value of just €22 per share, or a just under 20x 2026 earnings. We believe this to be good value for approximately a 30% share of global music, at a time when the industry is being transformed, with better monetisation and improving earnings quality.

The combination of UMG’s attractiveness, and the near-term potential catalyst in Vivendi’s discount, make us optimistic for prospective returns.

At Vivendi, the ongoing rationalisation continues with the
company accepting a takeover bid for its Brazilian broadband
business GVT. We used the strength in the share price to take
partial profits on our holding. We had added to the position at
the end of June on price weakness, and the recent strength
allowed us to sell at a very narrow discount to our estimate of
NAV.

Apart from the investment in KT, the largest add-on investment we
made was Vivendi. Having reduced our holding substantially in
February when the share price almost reached €21, the shares have
drifted downwards and we added to our holding around the €18
level. Subsequent to this, the company announced that they had
received a bid for GVT, their Brazilian broadband company. A sale
of this asset, following the sales of SFR, Maroc Telecom and
Activision Blizzard, would leave Vivendi with two main businesses –
Universal Music and Canal Plus – and should see the conglomerate
discount evaporate.

Vivendi announced plans to return €5bn to shareholders
over the next two years. The amount represents approximately 20% of
the market cap of the company with the bulk being paid on completion
of the SFR sale in 2015.

We mentioned last month that there were two bidders for Vivendi’s
SFR. These came from Bouygues and Altice. As we write this
newsletter, the result of the bidding was has been announced and
the victor is Altice. Along the way, when it appeared Bouygues had
the upper hand its share price jumped by 12% over a two day period
and we took our profits and exited, realising a 26% IRR over our 6
month holding period. We retain our holding in Vivendi, having
reduced it earlier in the year, and await clarification from the
company on any return of capital which we believe likely given the
very substantial cash inflow it will see from the sale of SFR to Altice.

In addition, partial profits were taken in Vivendi with a small reduction in the size of the holding as the discount moved in to
single digits on the back of recent moves by management to spin off SFR and eliminate the conglomerate discount. The price was
also boosted by rumours of a possible bid for SFR, as an alternative exit route. There is still potential for further narrowing of the
discount and the speculation surrounding consolidation in the French mobile phone sector is positive for another holding,
Bouygues.