Pershing Square Capital Management has submitted a $64 billion merger bid for Universal Music Group.
Pershing Square already has a stake in UMG. If the deal went ahead, the major would move from its Amsterdam listing to the New York Stock Exchange.
As well as representing artists such as Taylor Swift, Olivia Dean, Kendrick Lamar and Sabrina Carpenter, UMG owns labels, a music publishing company (UMPG) and studios including Abbey Road.
The non-binding proposal to the board would see Pershing Square acquire all outstanding shares of UMG through a business combination transaction, together with a “value creation plan designed to deliver significant benefits to UMG stakeholders” according to a statement.
“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,” said Pershing Square CEO Bill Ackman. “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.”
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
Bill Ackman
Pershing Square believes that UMG’s share price underperformance is principally due to uncertainty concerning the Bolloré Group’s 18% stake in the company, as well as the postponement of UMG’s US listing.
It also cites the “underutilisation of UMG’s balance sheet, which has led to reduced returns on equity”, along with the absence of a publicly disclosed capital allocation plan and earnings algorithm, as reasons for the share price underperforming.
The lack of investor credit in UMG’s valuation for its €2.7 billion stake in Spotify is also cited. This would be sold on the market or as a block transaction.
As part of the transaction, UMG’s board would be reshaped to include CAA co-founder and former Disney president Michael Ovitz as chairman, along with two representatives from Pershing Square in addition to members from the current UMG board.
UMG has been working with SoundPatrol, chaired and co-founded by Ovitz, on protecting artists from AI-based copyright infringement.
“Michael Ovitz is one of the most recognised global entertainment executives, having represented many of the most important and iconic music, film, and entertainment acts in the world,” stated Pershing’s letter to the board. “He also has a 40-year relationship with Sir Lucian Grainge.”
Under the terms of the deal, shareholders would receive a total of €9.4 billion in cash (€5.05 per share) and 0.77 shares of new UMG stock for each share of UMG held.
UMG has not commented on the proposal.
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