Pershing Square Launches US$64 Billion Bid for Universal Music

Pershing Square Capital Management makes a US$64 billion bid for Universal Music Group, seeking a NYSE relisting to address valuation gaps tied to EU market structure.

Pershing Square Capital Management has submitted a formal proposal to acquire Universal Music Group (UMG) for €55 billion (US$64 billion). This transaction aims to transition the primary listing of the world’s largest music company from Euronext Amsterdam to the New York Stock Exchange (NYSE).

William Ackman, CEO, Pershing Square Capital Management, says the equity value of UMG has remained stagnant despite strong operational results. He names structural market issues and the current European listing as primary factors that have hindered the performance of the corporation. 

The proposed acquisition seeks to rectify these inefficiencies by moving the entity to a financial environment better suited for high-growth media and technology companies. "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," says Ackman. 

This move is designed to provide UMG with greater exposure to the US investor base, which typically assigns higher valuation multiples to companies managing significant intellectual property and royalty streams.

Industry Landscape and Historical Market Performance

UMG stands as the dominant entity within the three major record labels, alongside Sony Music Group and Warner Music Group. The corporation manages a vast artist roster that includes Taylor Swift, Drake, and Ariana Grande, to name a few. 

According to the Financial Times, UMG shares experienced a depreciation of more than 30% during previous months. This decline was largely driven by institutional concerns regarding the impact of Generative AI on the long-term profitability of the music industry.

Investors have expressed apprehension that AI-generated content could saturate streaming platforms and disrupt established royalty distribution models. Furthermore, the absence of a transparent capital allocation plan has contributed to market volatility. 

During this time, the share price could have also been impacted by the influence of the Bolloré family. Vincent Bolloré, Chairman, Bolloré Group, controls an 18% stake in UMG, following its spin-off from the French media conglomerate Vivendi in 2021.

Market analysts, including those from AJ Bell, suggest that this concentrated ownership creates an "overhang" on the stock, leading to valuation uncertainty. Additionally, Vivendi maintains a holding of nearly 10%, while Tencent Holdings holds 11.4%. These large blocks of shares can limit liquidity and complicate the path for independent price discovery. 

Pershing Square argues that the listing in Amsterdam fails to provide the necessary visibility to attract the depth of capital available in the New York market.

Transaction Structure and Institutional Implications

The proposed deal is structured as a merger between UMG and a blank-check company established by Ackman. Under the terms of the offer, Pershing Square values each UMG share at €30.40 (US$35.21). To incentivize shareholders, the transaction includes a significant cash component totaling €9.4 billion (US$10.8 billion). Investors would receive €5.05 in cash for every share held, along with 0.77 shares in the new New York-listed entity.

This valuation represents a substantial premium over recent trading levels. Following the announcement, UMG shares jumped 11% in early trading and closed the session with a 13% increase. The positive reaction from the market indicates that investors view a US relisting as a primary catalyst for unlocking the true value of the company. However, the success of the acquisition remains contingent on the approval of the major shareholders, particularly the Bolloré family and Tencent.

Ackman says he has engaged in preliminary discussions with the Bolloré Group and describes their response as "intrigued." To secure a majority, Pershing Square must demonstrate that the long-term benefits of the NYSE listing outweigh the tax and regulatory complexities of a cross-border merger. Dan Coatsworth, Head of Markets, AJ Bell, says that Ackman will require a sophisticated strategy to win over these major institutional blocks.

A component of the proposal involves the underutilized assets on the UMG balance sheet. Specifically, the corporation owns a minority stake in the streaming service Spotify, which is valued at approximately €2.7 billion (US$3.1 billion). Pershing Square argues that the market has provided a "lack of investor credit" for this asset. By transitioning to a US listing, the corporation says it can provide a clearer capital allocation strategy that emphasizes the value of such strategic investments.

The acquisition proposal coincides with the Initial Public Offering (IPO) of Pershing Square USA. Ackman intends to raise between US$10 billion for this new closed-end fund, which will also be listed on the NYSE. This broader strategy reflects his focus on acquiring high-quality businesses with significant pricing power and durable competitive advantages. Pershing Square, which manages over US$26 billion in assets, has held a 10% stake in UMG since 2021 and argues that the business is currently mispriced.