Bill Ackman’s Pershing Square made a $64 billion bid on Tuesday to acquire Universal Music Group (UMG) through its acquisition vehicle, proposing to relocate the world’s largest music label’s stock listing to New York in an effort to enhance its market value. The cash-and-shares offer values UMG at approximately 30.40 euros per share, representing a 78% premium over its last closing price of 17.10 euros. This places the total deal value at around 55.75 billion euros ($64.31 billion).
Universal Music Group, home to global stars such as Taylor Swift, Billie Eilish, and Kendrick Lamar, did not comment on the proposed transaction. Analysts at ING noted that while the offer is non-binding and may not succeed, it raises important questions and advocates for significant changes. They expect investors to scrutinize the proposal carefully.
Shares of the Amsterdam-listed entertainment company rose 10% to 1355 on Tuesday, with Bollore Group, UMG’s largest shareholder, gaining 5%. Vivendi, the second-largest shareholder, saw its shares increase by over 10%.
Pershing Square initially acquired a 10% stake in UMG from Vivendi before UMG’s 2021 Amsterdam IPO and has persistently pushed for a New York listing, arguing it would improve UMG’s share price and liquidity. The firm reduced its stake to 7.48% last year to activate a mechanism enabling the U.S. listing. However, UMG postponed its U.S. listing plans in March due to unfavorable market conditions. Currently, Pershing holds a 4.7% stake, ranking as UMG’s fourth-largest shareholder.
In a letter to UMG’s board, Ackman praised the company’s management for their strong business performance and strategic execution. Nonetheless, he attributed the low share price to factors such as uncertainty surrounding the 18% stake held by Bollore Group, the delayed U.S. listing, and underutilization of UMG’s balance sheet.
Since its IPO, UMG’s shares have declined by nearly one-third and trade at a long-term earnings multiple of 21.8 times, compared to Spotify’s 40 times, based on LSEG data. Despite steady global music revenue growth, UMG and other major labels like Sony and Warner Music face increasing competition from streaming platforms such as Spotify, Amazon, Apple, and Deezer. They also confront disruptions from artificial intelligence, including copyright issues and AI-generated music, which could transform music creation, consumption, and monetization. A recent survey revealed that 97% of listeners cannot distinguish between AI-produced and human-composed songs.
Under the proposed deal, Pershing’s SPARC Holdings would merge with UMG, forming a Nevada corporation listed on the New York Stock Exchange. Michael Ovitz, a renowned Hollywood talent agent and former Walt Disney Company president, would join the board as chairman, alongside two Pershing representatives. ING analysts suggested the proposal might prompt UMG’s management to depart, as it contradicts their strategy of expanding in emerging markets through mergers and acquisitions targeting 1 billion euros annually.
Pershing Square stated that UMG shareholders would receive 9.4 billion euros in cash plus 0.77 shares in the new company for each UMG share held. The cash portion would be financed through SPARC’s rights holders, debt, and proceeds from its Spotify stake. The transaction requires approval from both UMG and SPARC boards, a two-thirds majority vote from UMG shareholders present at a meeting, and regulatory clearances, with an expected closing by year-end.
Market expert Dan Coatsworth of AJ Bell highlighted Ackman’s ambition for large-scale deals, likening his approach to Warren Buffett’s strategy of acquiring undervalued companies. However, Coatsworth emphasized that Ackman will need a “full-on charm offensive” to secure support from major shareholders such as China’s Tencent and French billionaire Vincent Bollore, who played a key role in UMG’s Amsterdam IPO, one of Europe’s largest.
Bollore Group holds an 18.5% stake in UMG and additional influence through Vivendi, which owns 13.4% of UMG. Combined, Bollore controls over 80% of Universal’s voting rights. Neither Bollore Group nor Vivendi commented on the proposal, and Tencent Holdings, UMG’s third-largest shareholder, did not respond to inquiries. ($1 = 0.8674 euros)
