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

Bill Ackman’s Pershing Square offered to buy Universal Music Group on Tuesday in a $64 billion deal via its acquisition vehicle that would move the world’s biggest ​music label’s listing to New York in a bid to revive its value.

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

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

“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.

Shares ​in the entertainment company, which is listed in Amsterdam, were up 10% at 1355 on Tuesday, while top shareholder Bollore Group climbed 5%. Shares in Vivendi, UMG’s second-biggest shareholder, were up over 10%.

HOPES ​U.S. LISTING WILL BOOST UMG AS INDUSTRY FACES UPHEAVAL

Pershing bought a 10% stake in UMG from Vivendi ahead of its 2021 Amsterdam IPO and has since repeatedly ⁠pressed for a New York listing, arguing it would boost UMG’s share price and liquidity.

It cut its stake to 7.48% last year to trigger a mechanism for the U.S. move. But in March, UMG said market conditions ​had forced it to delay its plan for a U.S. listing.

Pershing currently has a 4.7% stake, making it UMG’s fourth-biggest shareholder.

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 U.S. listing delay and underutilisation of its balance sheet, among other things, for its low share price.

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

Even as global music revenues grow year after year, UMG and other major labels like Sony and Warner Music ​are scrambling to stay competitive as streaming services from Spotify, Amazon, Apple, and Deezer take an ever greater share.

They are now also contending with disruptions brought on by the expansion of artificial intelligence – from copyright disputes to the advent ​of song-generating AI tools – that threaten to upend how music is created, consumed and monetised.

One survey last year found a staggering 97% of listeners cannot distinguish between AI-generated and human-composed songs.

UNDER DEAL, MICHAEL OVITZ WOULD COME IN AS BOARD CHAIR

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.

Renowned Hollywood 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.

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 favour by UMG shareholders in attendance at a meeting and required regulatory approvals, it ​said, and is expected to close by the end of the year.

ACKMAN NEEDS ‘FULL-ON CHARM OFFENSIVE’, ANALYST SAYS

The move underscores Ackman’s ambition for large deals, said Dan ​Coatsworth, head of markets at ⁠AJ Bell, who said the Pershing founder had long admired Warren Buffett’s style of finding good companies going cheap and buying them outright.

But he added Ackman would need a “full-on charm offensive” to win over major shareholders like China’s Tencent and 74-year-old French billionaire Vincent Bollore, who drove UMG’s Amsterdam listing, one of the largest IPOs in European history at the time.

Bollore Group owns 18.5% of UMG but has additional exposure through Vivendi, which it partly owns and holds ⁠13.4% of UMG. ​Through those stakes Bollore commands over 80% of Universal’s voting rights, according to Universal’s investor relations page.

Bollore Group did not respond to ​a request for comment, while Vivendi declined to comment on the proposal.

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

($1 = 0.8674 euros)