Hedge Fund Lansdowne Tunes Into Spotify Stake

An array of prominent global investors including the London-based hedge fund Lansdowne Partners are in advanced talks to acquire multimillion pound stakes in Spotify, the digital music service.

Sky News can exclusively reveal the full list of investors who are expected to participate in a $400m (£268m) fundraising that will value Spotify at $8.4bn (£5.6bn).

The investors, who are betting that loss-making Spotify can ultimately use its loyal customer base to reap handsome profits, will each buy stakes valued at several tens of millions of dollars, with the largest acquiring up to $100m-worth (£72m) of stock, according to insiders.

The group of shareholders who are injecting the funds includes some existing backers, such as a division of Goldman Sachs (NYSE: GS-PB - news) , the Wall Street bank, GSV (Other OTC: GSVI - news) and Technology Crossover Ventures (TCV), which first invested in Spotify in 2013.

As well as Lansdowne, the new investors with whom Spotify is in discussions are the Abu Dhabi Investment Council, Baillie Gifford, DE Shaw, Discovery Capital Management, Halcyon Asset Management, Northzone, PSAM, Rinkelberg Capital (Other OTC: CGHC - news) and Senvest Capital (Toronto: SEC.TO - news) , sources said on Monday.

Lansdowne is one of London's oldest and best-known hedge funds, placing successful bets on the value of bank shares in the aftermath of the financial crisis, and emerging as one of the biggest shareholders in Royal Mail (LSE: RMG.L - news) when it was controversially privatised in 2013.

The funding round, which will be Spotify's seventh since it launched in 2008, is expected to be closed in the next few weeks.

It is possible that some of those in talks will drop out of the negotiations before signing, sources said, while it was unclear whether the group of investors will formally commit capital until Spotify has agreed a renewal of a licensing contract it has with Universal Music Group, the world's largest music company.

Insiders described that deal as "crucial" and said it would not be signed until the two sides had settled upon "mutually agreeable terms".

As of mid-January this year, Spotify had 60m monthly active users, of whom 15 million were paying subscribers, according to the company.

At £5.6bn, the company will be valued at more than twice the level at which EMI was broken up and sold for in 2012.

However, Spotify continues to lose money, with operating losses in 2013 - the last year for which financial performance figures are available - rising 16.4% from just under €80m (£57m) in 2012 to €93.1m (£67.1m).

News of the latest fundraising comes as it emerged that physical music sales in the UK have rebounded, growing by almost £10m in the first quarter of 2015, and helping HMV to recapture its former status as Britain's biggest music retailer.

Competition among digital music platforms also continues to intensify, with Tidal, a service owned by Jay-Z (Other OTC: ZHLD - news) and other leading artists, launching earlier this month.

Apple (NasdaqGS: AAPL - news) and Google (Xetra: A0B7FY - news) are also developing new services in the space.

Spotify has launched a string of new services and joint ventures as it seeks to broaden its consumer appeal and revenue base.

In 2013, it unveiled Spotify Connect, which links mobile devices to home audio equipment, and it has rapidly expanded its international presence, launching in Brazil and Canada recently to take the number of markets in which it has a presence to 58.

Spotify's existing shareholders include a host of prominent names from Wall Street and Silicon Valley, including Goldman Sachs, DST, Accel Partners and Kleiner Perkins.

The Coca-Cola Company (Xetra: 850663 - news) became a minor shareholder in Spotify in 2013, underlining the growing trend for major consumer brands to acquire shareholdings in digital ventures.

It is unclear whether Coca-Cola is to invest as part of the latest funding round.

The rapid expansion of Spotify, which offers users on-demand access to tens of millions of songs for set monthly fees, has sparked tensions with some artists over royalty payments.

Spotify and Lansdowne both declined to comment on Monday.