Spotify and Tencent agree to swap stakes in their music businesses

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Tencent’s overseas investment splurge continues after the company confirmed a deal with Spotify that will see the duo make investments in each other’s music businesses.

Tencent Music Entertainment (TME), the Chinese firm’s subsidiary that manages its music streaming and karaoke services, will make an undisclosed minority investment in Spotify through new shares, while Spotify will buy a similar undisclosed stake in TME. Further to that, Tencent will make its own investment in Spotify by purchasing secondary shares from existing backers.

“Following these transactions, Spotify will hold a minority stake in TME, and both Tencent and TME will hold minority stakes in Spotify,” the companies said in a joint statement.

Spotify’s IPO is hotly anticipated and it has been tipped to take place as soon as next year. Potentially, the company could opt for a “direct listing” which would mean going public without doing an IPO. In other words it is just insiders, not the company, that sells shares to the stock market.

It’s unclear whether this deal impacts the potential for a direct listing.

Tencent became Asia’s first $500 billion company by market cap primarily by virtue of its surging business interests in China, which include a lucrative PC-mobile games business and China’s top messaging app WeChat.

The firm has, however, expanded its presence outside of China significantly through investments. Deals with Tesla and Snapchat, two public U.S. businesses, are perhaps the highlights, but Tencent has also put money into in India-based unicorns Flipkartmessaging app Hikehealth portal Practo and Uber rival Ola. Other earlier-stage deals include flying cars, lunar drones and asteroid mining, while longer-standing investments like Sogou (search) and China Literature (e-publishing) have gone public over the past month.

TME has been tipped to go public — potentially in Hong Kong and at a $10 billion valuation — in the coming period. Its listing would follow successful IPOs from Tencent’s e-book subsidiary China Literature, as well as Yixin and search engine Sogou, both of which are in Tencent’s investment portfolio.

There have clearly been talks between both sides. Earlier this year, we reported that Tencent had held talks to potentially acquire Spotify but they broke down. Last week, the Wall Street Journal reported that the two companies were in talks to exchange equity ahead of today’s announcement. The publication claimed that each company’s stake would be less than 10 percent.

The Tencent-Spotify alliance comes one day after Bloomberg reported that Google’s YouTube is planning to release its own music streaming service next year. The service has reportedly secured the support of Warner with Sony and Universal currently in talks.

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