Pershing Square makes its move

Bill Ackman’s Pershing Square Capital Management has put forward a non-binding proposal to Universal Music Group’s board to buy all of the music giant’s outstanding shares in a deal valued at roughly $63.5 billion. The pitch comes with what the firm describes as a “value creation plan designed to deliver significant benefits to UMG stakeholders,” because apparently even a giant music catalog now needs a spreadsheet to go with it.

UMG, home to artists including Taylor Swift and Kendrick Lamar, has been in Pershing Square’s portfolio since 2021. Under the proposed terms, Pershing says it would value each UMG share at €30.40, putting the company’s total equity value at about €55 billion, or $63.5 billion.

Pershing Square chief executive Bill Ackman praised UMG chairman and CEO Sir Lucian Grainge and the management team for building a strong business since the company’s stock market listing. But he argued that the share price has not kept up for reasons that have little to do with the music operation itself.

“Since UMG’s [stock market] listing, [UMG chairman and CEO] 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,” Ackman said. “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.”

Why Pershing says UMG’s stock has lagged

Pershing Square said it believes UMG’s underperformance is mainly the result of several issues, including:

  • Uncertainty around Bolloré Group’s 18 percent stake in the company
  • The delay of UMG’s U.S. stock market listing
  • Limited use of UMG’s balance sheet, which Pershing says has reduced returns on equity
  • The absence of a publicly disclosed capital allocation plan and earnings algorithm
  • The market not giving UMG credit for its €2.7 billion ($3.1 billion) stake in Spotify
  • Weaknesses in shareholder relations, communications, and investor engagement

What the deal would look like

In Pershing Square’s proposal, UMG would merge with Pershing Square SPARC Holdings. The combined company would become a Nevada corporation listed on the New York Stock Exchange.

Pershing said it expects the transaction to close by year-end. Shareholders would receive:

  • €9.4 billion in cash, or €5.05 per share
  • 0.77 shares of New UMG stock for each UMG share they currently own

The new UMG would report under U.S. GAAP and would be eligible for inclusion in the S&P 500 and other indexes. Pershing also said the deal would allow for the cancellation of 17 percent of UMG’s outstanding shares while keeping the company’s investment-grade balance sheet and preserving long-term financial and strategic flexibility.

Pershing Square said all equity financing would be backed by the firm and its affiliates, while all debt financing would be committed at signing.