Bill Ackman’s investment firm, Pershing Square Capital Management, announced on Tuesday that it has made a non-binding proposal to acquire all outstanding shares of Universal Music Group (UMG). The proposed deal combines cash and stock and comes with a detailed value creation plan worth about 55.8 billion euros ($64.4 billion).
Ackman highlighted several reasons for UMG’s underperformance. These include uncertainty over Bolloré Group’s 18% stake, the postponement of UMG’s US listing, and “suboptimal” shareholder communications and engagement.
Bill Ackman’s $64 Bn deal to buy Universal Music
Pershing Square said its proposal values Universal Music at roughly 30.4 euros per share. This is a big jump from the company’s recent market price, as Universal Music’s shares last closed at 17.1 euros.
According to Business Wire, under the proposal, UMG shareholders would receive a total of €9.4 billion in cash, equal to €5.05 per share, along with 0.77 shares in the new UMG stock for each share they currently own.
Altogether, the package is estimated to be worth €30.40 per share, representing a 78% premium over UMG’s last closing price. All equity financing for the transaction will be fully backstopped by Pershing Square and its affiliates, while all debt financing will be committed at signing.
UMG was spun out of French media group Vivendi, with controlling shareholder Vincent Bolloré retaining a stake worth about 5.9 billion euros at the time. The company, home to platinum-selling artists such as Lady Gaga and Taylor Swift, was listed on the Euronext Amsterdam stock exchange in 2021 with an initial valuation of 46 billion euros.
Bill Ackman praised UMG’s leadership, saying, “Since UMG’s listing, Sir Lucian Grainge and the company’s management have done an excellent job nurturing and continuing to build a world-class artist roster and generating strong business performance. However, UMG’s stock price has languished due to a combination of issues that are unrelated to the performance of its music business and importantly, all of them can be addressed with this transaction.”
The transaction and formation of new UMG
If the deal goes through, UMG will merge with Pershing Square SPARC Holdings, Ltd. (SPARC) to form New UMG, a Nevada corporation listed on the New York Stock Exchange. The transaction is expected to close by the end of this year.
As part of the proposal, Pershing Square has suggested a board refresh, including naming Michael Ovitz, one of the world’s most recognised entertainment executives, as UMG chairman. The plan would also add two Pershing Square affiliates to UMG’s board. The deal would also involve a new employment contract and compensation arrangement for UMG CEO Lucian Grainge.
According to Business Wire, the deal will allow the cancellation of 17% of UMG’s outstanding shares, while maintaining the company’s investment-grade balance sheet and long-term strategic flexibility. New UMG will have 1.541 billion shares outstanding and prepare financial statements under US GAAP, making it eligible for inclusion in the S&P 500 and other indexes.