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Pershing Square unveils transaction valuing Universal Music at 55 bn euros
American hedge fund Pershing Square, led by the activist investor Bill Ackman, announced Tuesday a transaction valuing Universal Music Group at up to 55 billion euros, saying it believed the music giant was undervalued by stock markets.
Under the proposal, Pershing would merge UMG with Pershing Square SPARC Holding, an acquisition company that would be listed on the New York Stock Exchange.
Current UMG shareholders could exchange their holdings for a mix of cash and shares in the new entity, or for all cash or all shares, Pershing said in a letter to the UMG board.
Pershing Square said its cash and stock offer to Universal shareholders was worth 30.40 euros ($35.15) a share, valuing Universal with its stable of top artists including Taylor Swift, The Weeknd and Lady Gaga at around 55 billion euros.
That amounts to a premium of 78 percent to its April 2 closing price.
In the case where shareholder opt to cash out, they would receive 22 euros per shares, a premium of 29 percent.
But, according to an AFP calculation, Pershing would not hold a majority of shares under either scenario.
Pershing Square said in a statement that it had submitted the offer to Universal's board, hoping to close the deal by the end of 2026.
"UMG's stock price has languished due to a combination of issues that are unrelated to the performance of its music business," Ackman said in a statement.
The company pointed to uncertainty about French conglomerate Bollore's plans for its 18 percent stake in Universal, a delay in listing on the US stock market, and "underutilisation of UMG's balance sheet" among concerns that have held back the shares' performance.
Pershing Square bought 10 percent of UMG from the French media giant Vivendi, also owned by Bollore, in August 2021. But Pershing's holding is now about 4.7 percent, according to US media.
If the merger goes ahead, the new company would aim to increase its dividend payouts by two percent each year and maintain borrowing of 2.5 times its operating profit (EBITDA), Pershing Square said in a letter to Universal's Board.
"All free cash flow after required investments in the business will be used for share repurchases," the letter added.
Universal shares ended Tuesday's session at 19.06 euros, up 11.4 percent.
S. Soares--JDB
