Pershing Square Proposes $64 Billion Merger with Universal Music Group

Bill Ackman's Pershing Square Proposes $64 Billion Deal to Merge Universal Music Group with Investment Fund

American billionaire Bill Ackman's Pershing Square has proposed a $64 billion deal to merge Universal Music Group (UMG) with its investment fund, SPARC Holdings, in an attempt to revive the label's valuation through a listing in the United States. The proposal, as reported by Reuters, would see UMG's shares valued at a 78% premium, near 30.40 euros each, compared to its last close price of 17.10 euros.

The deal, worth 55.75 billion euros ($64.31 billion), would be executed through a cash-and-shares offer. UMG, which houses international artists including Billie Eilish, Drake, and Taylor Swift, has declined to respond to Reuters queries. The Amsterdam-listed label's shares rose 12% today, while top shareholder Bollore Group climbed 7%.

The proposal has been met with cautious optimism by analysts at ING, who stated that the offer is non-binding and may fail but has the merit of raising valid questions and making the case for dramatic changes. They expect investors to carefully consider the proposal, which includes a New York listing to boost UMG's share price and liquidity.

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The move by Pershing Square comes after UMG delayed plans for a US listing in March, where Pershing exercised its right to request a US offering and argued that listing in NY would boost UMG's share price and liquidity. The influx of artificial intelligence has hit labels hard, including big three Sony, Warner Music, and UMG, which have lost almost a third of their value since its listing in 2021.

According to LSEG data, UMG's shares currently trade at a long-term multiple of 21.8 times earnings, compared with Spotify's 40 times. In a letter to UMG directors, Ackman praised the management for running a strong business and strategic execution but blamed uncertainty over the 18% stake held by Bollore Group, the delay to the planned U.S. listing, and underutilisation of its balance sheet for its low share price.

Under the 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. Talent agent and former Walt Disney Company president Michael Ovitz would join the board as chairman, along with two Pershing representatives.

The deal could prompt UMG management to leave, 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. 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. 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.

The transaction is expected to close by the end of the year, with Pershing Square currently holding a 4.7% stake in UMG, making it the company's fourth-biggest shareholder.