As expected, Believe’s independent board of directors has approved the offer made by the consortium headed by Denis Ladegaillerie, the company’s founder and CEO, to acquire a majority of the company’s share capital at €15 a share - but there’s an unexpected twist.

Originally, Ladegaillerie and his backers had planned to acquire 100% of the company’s shares using their significant stake to institute a “squeeze-out” of minority shareholders, a tactic often employed in takeover bids. Under a squeeze-out, existing shareholders are compelled to give up their equity at the offer price, giving a company’s new owners absolute control, reducing the amount of external oversight and accountability required vs a public company, and reducing costs, by eliminating the administrative and regulatory overheads of a public company. 

The consortium quietly announced a week ago that it would no longer be instituting its squeeze-out provision, meaning existing shareholders can opt either to cash in their shares at €15 per share, or to ignore that offer and remain investors in the company. 

The decision by Believe’s now-de facto future owners not to compel existing shareholders to give up their stake in the company is interesting. On one analysis this could be an indication that the new owners are not only open to maintaining a diversity of shareholders - and the increased oversight and regulatory burdens that go with that - but potentially see an advantage in keeping a publicly listed element to Believe as it enters its next phase.

On the other hand, it could be an indication that the consortium is keen to get the deal done, and saw a potential threat for further regulatory involvement if they forced minority shareholders to liquidate in their favour. That spectre of regulatory involvement may have been triggered by Warner Music Group’s “phantom bid” for Believe - seen by some to be a curious move at a price that Warner may not have been able to afford without taking on more debt, and which may not have passed regulatory muster even if it could afford it.

However, a source close to the consortium today confirmed to CMU that the primary objective for the transaction was to give the company a new “reference shareholder with significant financing capacity” - in the form of EQT - to enable Believe to take full advantage of “the upcoming consolidation phase in the music industry”. 

A secondary objective, said that source, was to “provide liquidity” to long term investors - such as Ventech and Xange, who have sold their stakes to the consortium - allowing them to realise a return on their investment. Additionally, by Believe remaining private it allows “investors who supported Believe during IPO” an opportunity to “continue to participate in the growth plan of the company”. These likely include investors such as Fonds Strategique de Participations and Paris-based asset managers Sycomore AM

FSP is an investment syndicate representing the interests of seven of France’s biggest insurers, which increased its stake in Believe in November 2022, and is represented on the Believe board by Cécile Frot-Coutaz the CEO of Sky Studios. “Delisting Believe was never the primary objective” said the same source. 

This fits with CMU’s previous analysis that the potential upside for existing institutional shareholders who opted to participate in the consortium would likely oustrip the modest premium being offered by Warner Music Group. As such it would seem likely that this may have been a key consideration in Warner’s decision not proceed with an offer for Believe.

However, the amended private/public nature of the consortium bid offers an additional benefit to those shareholders, allowing them to participate in any future growth in the company, but in a liquid public market, rather than as shareholders in a much less liquid privately owned company. Indeed, it would not be surprising if some fund and asset manager investors’ own due diligence and liquidity requirements would prevent them from participating in a fully private iteration of Believe. 

From an industry perspective it’s particularly interesting, as it means that Believe will continue to report as a publicly traded company, giving continuing deep insights into the performance of a significant participant in the European - and, increasingly, global - music industry. 

Today’s announcement also saw Believe’s board confirm that all conditions required for the consortium to acquire the blocks of shares necessary for it to proceed with its offer have now been fulfilled - including approval under competition law -  making that transfer of shares “firm and irrevocable”. This now means the only remaining step is the approval of the deal by the French markets regulator, the Autorité des Marchés Financiers, or AMF.

This all now marks a near-final step in Believe’s plans, and comes after a period during which a committee acting as Believe’s independent board of directors - those not participating in the consortium’s bid - have been making a balanced assessment of the consortium’s proposal, including an analysis by independent auditors. 

The statement says that it is the committee’s “reasoned opinion” that the offer of €15 per share put forward by Ladegaillerie and his partners is good for shareholders, employees and the company more generally. In particular, it offers minority shareholders an opportunity to “benefit from immediate and full liquidity” at a significant premium to the company’s pre-offer share price, but also means that the company and its employees “benefit from the support of leading shareholders aligned with its development plan, and with the ability to support the company in the next phase of growth and market consolidation”. 

That said, the committee of directors also highlighted that the €15 per share offer was lower than the IPO price of €19.50 - and also lower than some metrics commonly employed to value companies. That €15 per share offer is a significant premium over the traded shared share price, which had been flagging significantly since Believe’s IPO despite the company demonstrating solid growth. 

However, French audit expert Ledouble, brought in as an independent expert by the directors’ committee, said that on an intrinsic discounted cash flow analysis Believe could be worth anything from €13 to €20.20 per share, and that the “central value” per share is €17.20. However, Ledouble also pointed out that taking only organic growth into account, Believe might be worth just €14.20 per share.

As with any corporate finance transaction involving a listed company, the value is whatever anyone is prepared to pay. Undoubtedly, Ladegaillerie and his partners are getting a great deal at €15 a share - but equally, with Warner having indicated it might pay €17 a share, before drawing back “after due diligence”, the pool of potential bidders for a company of Believe’s size, stature and complexity is limited. As CMU flagged at the time, even had Warner proceeded with a bid, it would have been remarkable if it had passed regulatory scrutiny, with France’s independent label body UPFI calling for government intervention because of the “potentially devastating consequences” of Warner taking control of Believe.

With Believe now likely to continue to operate as a publicly listed company under majority ownership of private investors backed by very well consortium funded partners - and with sources close to that consortium highlighting the opportunities presented by “upcoming consolidation” in the music industry - it likely that this is the start of a new beat for Believe, rather than the end of an old song.

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