For $64 billion, Bill Ackman is looking to buy the largest music label in the world.
Last Tuesday, Universal Music Group received an unsolicited offer from Ackman’s New York investment firm Pershing Square Capital Management to acquire its business in a cash and stock bundle. If Universal Music Group takes the offer, it will merge with Pershing Square SPARC Holdings to form a Nevada corporation listed on New York Stock Exchange by the name of “New UMG,” with an expected year-end closing date. Shareholders will receive $11.55 billion (€9.4 billion) in cash or $6.20 (€5.05) per share. They will also receive 0.77 shares of New UMG stock for each share of the dual-headquartered label company, who operates primarily out of Santa Monica.
“Since UMG’s listing, 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 in a statement. “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.”
Pershing Square attributed Universal Music Group’s stock underperformance to the uncertainty of French conglomerate Bolloré Group’s 18% stake, a delay in its U.S. listing, underutilization of its balance sheet and “suboptimal” investor relations among others. The new company, projected to have 1.541 billion outstanding shares, will cancel out 17% of Universal Music Group’s current outstanding shares. New UMG will publish statements under U.S. GAAP and be eligible for the Standard & Poor’s 500.
The record company confirmed they received the offer and said it has “complete confidence in UMG’s strategy and the leadership of Sir Lucian Grainge and the company’s management team.”
It had no further comment until the board completes a review.
With the acquisition deal, Pershing Square is looking to expand its existing 4.7% stake in the label company, whose roster includes Taylor Swift, Lady Gaga, Kendrick Lamar, Bad Bunny and Billie Eilish. Considered one of the “big three” record labels, Universal Music Group shares about 30% of the market with Warner Music Group and Sony Music.
“The music label would provide an ongoing source of cash flow, or ‘permanent capital,’ according to Ackman,” Motley Fool technology analyst Danny Vena wrote in a note. “This would give the billionaire a free hand to build Pershing into a conglomerate worthy of the Warren Buffett seal of approval.”
Vena noted that since spinning off from French Investment company Vivendi in 2021 to form a public company, Universal Music Group’s stock has “stagnated.” The company closed its first day of public trading on Sept. 21, 2021, at $30.84 (€25.10) a share with a market capitalization close to $52.7 billion (€45 billion). Last Monday, the stock prices fell 36% to close at $19.85. However, since the acquisition proposal, the stock has bounced back to reach $23.72 a share last Wednesday.
This isn’t Ackman’s first attempt at haggling with a major L.A. company. In 2012, he launched a much-publicized campaign against downtown-based nutrition supplement company Herbalife. He placed a $1 billion bet against the company and shorted its stock, in the hopes that Herbalife shares would plummet after it was found to be a pyramid scheme. Ackman threw in the towel on the five-year campaign in 2018, following a steady Herbalife performance on trading floors.
