Hedge Fund Giant Pershing Square Eyes Stake in Universal Music Group

Pershing Square Capital Management’s Bill Ackman is eyeing a 10% stake in Universal Music Group, to be purchased by his special-purpose acquisition company. Vivendi-owned UMG, the world’s biggest music company, is headed for an IPO later this year.

The hedge fund billionaire announced nearly a year ago his interest in aligning with a corporation of such size for his SPAC known as Pershing Square Tontine Holdings. The discussions place the valuation of UMG — home to Lady Gaga, Taylor Swift and Drake, among many others — at $40 billion. Should the deal close, which would take a few weeks, according to an insider who confirmed the talks were ongoing, the complicated agreement would mark the biggest SPAC transaction to date, per the Wall Street Journal, which first reported the news.

Vivendi had previously announced that UMG would be spun off as a standalone entity to trade on Euronext after Vivendi distributes 60% of UMG to its shareholders by September. Additionally, China’s Tencent acquired 20% of UMG, leaving 20% to Vivendi, to which it was considering selling half, as reported by Variety on May 18. If the Ackman deal transpires, what happens then? Will Ackman receive a seat on the UMG board or any significant voting privileges? All of this remains unclear.

Pershing Square also owns stakes in Chipotle, Domino’s Pizza, the Lowe’s home improvement chain and Hilton Hotels but holds no other media or entertainment properties. A rep for Pershing Square declined to comment.

Vivendi has said that UMG’s new publicly-listed Dutch entity will have a board “comprised primarily of non-executive members, a majority of whom will be independent,” and that neither Vivendi nor Group Bolloré — which is operated by Vivendi chief Vincent Bollore and has a 27% stake in Vivendi — “intend to be represented on the Board at this stage.”

UMG was valued at a whopping $53 billion — up from $36 billion last year — last month in Goldman Sachs’ annual “Music in the Air” study, is widely recognized in the music industry as an optimistic but authoritative survey of the business, demonstrating the perceived strength of the recorded-music and publishing businesses, which are primary among UMG’s many properties, despite the pandemic that has flattened other sectors of the industry, particularly live entertainment.

In Vivendi’s earnings report last month, UMG’s revenues were up 9.4%  thanks to the growth in subscription and streaming revenues (which was up 19.6%). Recorded music revenues grew by 10.8%, while physical sales were up 14.8%, driven by bigger sales of new release and catalog titles.

New releases from Justin Bieber and Olivia Rodrigo, as well as continued sales from The Weeknd, Ariana Grande and Pop Smoke, were among the most consumed for the first quarter of 2021, boosting the recorded music and publishing units’ bottom line. The cancellation of touring for much of 2020 and into 2021, however, did have an impact on merchandising and other revenues, which were down 10.0%.

A rep for UMG could not be reached for comment.

With reporting by Jem Aswad

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