Saturday 24 February 2018

Spotify plans flotation without an IPO with €11bn valuation

Ed Sheeran is one the most popular artists on Spotify.
Ed Sheeran is one the most popular artists on Spotify.

James Titcomb

Spotify's stock market debut is one of the technology world's most hotly-anticipated events, but the listing will disappoint one corner of Wall Street.

The music streaming service plans to go public this year without selling any new shares, in a blow to investment banks hoping to cash in on the float.

Instead, the company, expected to be valued at over $10bn (€11.7bn), will reportedly opt for an unconventional "direct listing" in which no new shares are sold but existing investors can dispose of their stakes.

Spotify is under pressure to go public due to the terms of a $1bn bond it issued last year which carries an increasing interest rate the longer it stays in private hands. This gives it an incentive to go public even if it does not have to raise extra cash, according to the Wall Street Journal.

Direct listings are rare on Wall Street, but would also allow Spotify investors and staff to make a return without their stakes being diluted or being subject to long lock-up periods that prevent them from selling shares.

This week, Spotify cleared a major hurdle to going public when it signed a new long term deal with Universal, the world's biggest record label. The deal, which allows artists to withhold albums from listeners who use the free, advertising-supported version for a limited time, was as major concession but helps secure the company's future.

Spotify has over 50m subscribers who pay a monthly fee for unlimited access, and another 50m who use the free version. Despite early criticism of streaming from the industry, it is now seen as the most promising source of growth. Streaming revenues rose 65pc in the UK last year to make up 37.6pc of music industry sales.

The Swedish company's sales grew by 81pc to €1.95bn (£1.7bn) in 2015, although its losses also grew to €173m.

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