Bill Ackman’s Pershing Square proposes US$64 billion merger deal with Universal Music Group

Bill Ackman, CEO of Pershing Square Capital Management, is pictured in New York City. (Michael M. Santiago/Getty Images via CNN Newsource)

Bill Ackman’s Pershing Square proposed a deal on Tuesday to merge Universal Music Group with its investment fund under a plan to revive the world’s biggest music label’s value with a listing in the United States.

Pershing Square’s cash-and-shares offer values Universal Music at around 30.40 euros per share - a 78 per cent premium to last close price at 17.10 euros - making the deal worth 55.75 billion euros (US$64.31 billion), according to Reuters calculations.

Universal Music Group - the company behind international superstars including Taylor Swift, Billie Eilish and Drake - declined a Reuters request for comment on the proposed deal.

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The Amsterdam-listed entertainment company’s shares were up 12 per cent on Tuesday, while top shareholder Bollore Group climbed seven per cent.

“The offer is non-binding and might well fail but we think at a minimum it has the merit of raising valid questions and making the case for dramatic changes,” said analysts at ING, adding that they expected investors to carefully consider the proposal.

Pershing hopes New York listing will boost UMG shares

Pershing’s move comes after UMG last month delayed a plan for a U.S. listing, walking back from an agreement with Pershing, which had exercised its right to request a U.S. offering and had argued a New York listing would boost UMG’s share price and liquidity.

Like other big music labels Sony and Warner Music, UMG is scrambling to stay competitive in the AI-driven music landscape.

Its shares have lost almost a third of their value since its listing in 2021 and currently trade at a long-term multiple of 21.8 times earnings, compared with Spotify’s 40 times, according to LSEG data.

In a letter to UMG directors, Ackman said its management had done an “excellent” job of running a strong business and strategic execution. But he blamed uncertainty over the 18% stake held by Bollore Group, the delay to the planned U.S. listing and underutilisation of its balance sheet, among other things, for its low share price.

Under Tuesday’s proposal, Pershing’s SPARC Holdings would merge with UMG and the new entity would become a Nevada corporation listed on the New York Stock Exchange.

Under deal, Michael Ovitz would come in as board chair

Talent agent and former Walt Disney Company president Michael Ovitz would join the board as chairman with two Pershing representatives also taking seats, Ackman’s letter said.

The deal could prompt UMG management to leave, the ING analysts said, given that they had wanted a free hand in growing in emerging markets through M&A deals targeting 1 billion euros a year over the next few years.

“This seems a rather direct rebuttal of this strategy,” they said.

Pershing Square said that under the transaction UMG shareholders would receive a total of 9.4 billion euros in cash and 0.77 shares in the new company for every share held in UMG.

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The cash portion of the new proposed deal would be funded by Pershing from its SPARC’s rights holders, debt, and net proceeds from the company’s stake in Spotify, it said.

The transaction would be subject to approval by the UMG and SPARC boards, a two-thirds vote in favor by UMG shareholders in attendance at a meeting and required regulatory approvals, it said.

Bollore Group did not immediately respond to a request for comment.

Vivendi, which is UMG’s second-largest shareholder, declined to comment on the proposal.

Tencent Holdings, UMG’s third-biggest shareholder, did not immediately respond to a request for comment.

The transaction is expected to close by the end of the year, Pershing Square said. It currently has a 4.7 per cent stake according to LSEG data, making it UMG’s fourth-biggest shareholder.

(Reporting by Gnaneshwar Rajan in Bengaluru and Mateusz Rabiega in Gdansk; Additional reporting by Che Pa in Beijing, Inti Landauro and Mathieu Rosemain in Paris, Jerome Terroy in Gdansk, and Elvira Pollina in Milan; Editing by Sonia Cheema and Joe Bavier)