Billionaire William Ackman’s Pershing Square Tontine Holdings is in talks to buy 10% of Universal Music Group (UMG) for around $4 billion, the label’s owner Vivendi confirmed on Friday.
Vivendi, controlled by French billionaire Vincent Bollore, is planning to cash in on its UMG crown jewel, the world’s biggest music label with artists such as Taylor Swift, by spinning off the entity to existing shareholders. Vivendi said the deal with Ackman’s special purpose acquisition company (SPAC) would give UMG an enterprise value of 35 billion euros ($42.4 billion).
“Universal Music Group is one of the greatest businesses in the world,” Bill Ackman, CEO of PSTH, said in a joint statement.
Vivendi shares were up 0.7% in early trading. Pershing Square Tontine Holding’s shares were down nearly 6% at $23.5 a share in after-market trade, close to its initial public offering (IPO) price of $20 after news of the potential deal broke. The closer that SPAC shares trade to their IPO price, the more sceptical investors are that a deal will be completed.
SPACs such as Pershing Square Tontine raise money in an initial public offering with the aim of merging with a private company. For the private company, the process is an alternative to listing its shares through an IPO.
Nearly a year ago, in July 2020, Pershing Square raised $4billion in what was the biggest IPO by a blank-check firm.
Guggenheim Investments, hedge fund The Baupost Group, and Wells Capital Management are among the biggest investors in Pershing Square Tontine.
Universal Music is majority-owned by French media giant Vivendi, which last month said the equity of the music label was worth 33 billion euros ($40 billion), or more than the market value of the parent company. Tencent Holdings owns a roughly 20% stake in Universal.
Vivendi has been exploring taking Universal public, including through a traditional IPO.
In documents released ahead of Vivendi’s general meeting scheduled in June, Vivendi said that Universal was drawing interest from potential investors and that it could sell some of its stake to a “strategic partner” ahead of the distribution of universal’s shares.
At the time, Vivendi said it intended to keep at least a 10%stake in the company for a long period of time.
“Universal Music is a business that can be valued without speculating about it having a future,” said Erik Gordon, a professor of business at the University of Michigan.
“The terms of the Tontine SPAC also are better than the terms of most SPACs.”
