Shares of Universal Music Group jumped 12.9% on Tuesday after Bill Ackman’s Pershing Square Capital Management submitted a €55.8 billion ($64.4 billion) takeover bid to acquire the company’s outstanding shares.
The proposed cash-and-stock deal, which is expected to close by year end, would see Pershing form a newly merged company with UMG that would list on the New York Stock Exchange.
UMG shareholders would receive a total of €9.4 billion ($10.87 billion) in cash. Each share will be exchanged for €5.05 ($5.84) in cash and 0.77 shares of new UMG stock for each share of UMG held. That amounts to a total deal value of €30.40 euros per share, a 78% premium to UMG’s closing share price on April 2.
Alternatively, shareholders may elect to receive all cash, all stock, or a mix of stock and cash consideration, subject to proration. Shareholders who elect all cash would receive €22 in cash per share, a 29% premium to the April 2 closing price.
The cash portion of the deal will be funded with €2.5 billion ($2.89 billion) from Pershing Square, including €1.05 billion ($1.2 billion) from SPARC’s rights holders. It will also include €5.4 billion ($6.25 billion) in additional investment grade debt financing at New UMG and €1.5 billion ($1.74 billion) of net proceeds from the monetization of the company’s stake in Spotify, after taxes and net of the artists’ share of Spotify proceeds.
All equity financing for the transaction will be backstopped by Pershing Square and affiliates and all debt financing will be committed at signing. The company’s Spotify stake will also be sold in the market or a block transaction, with UMG artists expected to receive up to €750 million in proceeds from the sale of Spotify shares.
Ackman’s move comes as UMG shares have fallen 16% in the past year, 11.9% year to date and 19.5% in the past six months.
“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.”
Ackman blamed the stock decline on the postponement of UMG’s listing in the United States, uncertainty related to Bolloré Group’s 18% stake in the company, the “underutilization of UMG’s balance sheet, which has led to reduced returns on equity,” the absence of a “publicly disclosed capital allocation plan and earnings algorithm,” a lack of investor credit in UMG’s valuation for its €2.7 billion stake in Spotify and “suboptimal shareholder investor relations, communications, and engagement.”
New UMG will publish financial statements under U.S. GAAP disclosures and be eligible for S&P 500 and other index inclusion. The transaction will enable the cancellation of 17% of UMG outstanding shares while preserving the company’s investment grade balance sheet and its long-term financial and strategic flexibility. New UMG will have 1.541 billion shares outstanding.
Under a revised capital allocation policy, New UMG will target a a 2% per annum increase in its dividend above current levels in lieu of the current 50% of net income dividend policy. It will also target leverage ratio of approximately 2.5 times net debt to adjusted EBITDA and will spend free cash flow after required investments in the business on share repurchases.
Pershing Square estimates that New UMG will generate approximately €2.3 billion of cash from operating cash flow and earn €1.32 per share in 2027 — approximately 25 times earnings or €32.90 per share at year-end 2026, a 92% premium to the April 2 closing price.
It also expects to generate cash proceeds of approximately €15 billion over the next five years that will be available for investments, acquisitions, and/or share repurchases. Since its public listing in 2021, UMG has completed a total of €1.8 billion of acquisitions and strategic investments, Pershing Square said.
By the end of 2031, Pershing expects New UMG’s to reach €71 per share and a total value of €74 per share including dividends.
The deal would be subject to approval by UMG and SPARC’s boards of directors, a two-thirds vote by UMG shareholders and required regulatory approvals. SPARC common stock is currently 100% owned by Pershing Square who will vote to support the transaction.
It is also subject to a new employment contract and compensation arrangement for Sir Lucian Grainge and the creation of a new board of directors for New UMG that will include Michael Ovitz as chairman and two Pershing Square affiliates in addition to members from the current UMG board.
“We look forward to working expeditiously with the company to consummate this highly value-creating transaction,” Pershing Square concluded. “We and our advisors are available to discuss next steps for the Transaction.”
A UMG spokesperson did not immediately return TheWrap’s request for comment.
