Spotify, Tencent and the 10 Percent Stock Swap

by: The Knowledge Group

December 06, 2017


News recently broke that Spotify and Tencent are considering a stock swap. Both companies are planning on going public with IPOs in the near future. Such an agreement would have major ramifications for the online streaming platforms and possibly music lovers as well.

About the Prospective Deal

Under the terms of the alleged deal, Spotify would receive 10 percent of Tencent Music Entertainment, not all of Tencent Holdings. Industry analysts believe Tencent Music is valued around $10 billion. This co-acquisition appeases underwriters as well as stockholders. Each company benefits in that they are provided with a foothold in a new market and they save a ton of money. Furthermore, the prospective deal saves each from the battle for market share that would have inevitably occurred had they tried to enter one another’s space.

A Mutually Beneficial Arrangement

When reviewing the 10 percent swap proposed between Spotify and Tencent, one should consider the fact that the agreement makes these companies that much stronger when entering licensing negotiations with publishers and music labels. Licensing means everything to a company that operates a business based on copyright such as music streaming. After all, anyone who is familiar with this industry will testify that licensing agreements are often quite difficult to resolve. This is a large part of why industry experts declare the deal to be a win-win for both companies.

About The Numbers

Tencent Music has merely one-third of the subscriber base Spotify enjoys. Tencent Music has about half of Spotify’s market value and merely a fraction of its income. Considering these figures, it might be surprising that a 10 percent swap is proposed. The kicker is Spotify would receive a considerable amount of cash to account for the differences between each company’s valuation price.

In the end, the co-acquisition is beneficial for both sides. The deal allows each company to achieve its strategic objectives. Spotify’s goals are more short-term oriented while Tencent has more of a long-term view. It will be interesting to see how this agreement plays out in the coming months and years in terms of which company benefits more and whether the deal served as a catalyst toward success or a step toward a possible merger or buyout offer.


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