Activist investment firm Pershing Square announced on Tuesday a plan to acquire Universal Music Group in a cash-and-stock deal valued at approximately 55.8 billion euros ($64.4 billion).
Under the terms of the offer, existing shareholders of Universal Music would receive a total of 9.4 billion euros ($10.85 billion) in cash and 0.77 shares of the new company for each share held. Pershing Square stated that this values the offer at 30.4 euros per share, representing a 78% premium over Universal Music's closing price on April 2nd.
Shares of Universal Music were up 10% following the announcement, despite having fallen 23% year-to-date.
Bill Ackman, CEO of Pershing Square, commented in a statement, "Since Universal Music's listing, Sir Lucian Grainge and his management team have excelled in building a world-class artist roster and delivering strong business performance." He added, "However, the share price has consistently underperformed due to a series of factors unrelated to the music business's operational results. Crucially, these issues can be resolved through this transaction."
Ackman cited several reasons for the stock's poor performance, including uncertainty stemming from Bolloré Group's 18% stake in the company, delays in plans for a U.S. listing, and shareholder communication that has been "sub-optimal."
The proposed deal would involve merging Universal Music with Pershing Square to form a new entity, which would then list on the New York Stock Exchange. The transaction is expected to be finalized by the end of this year.
The offer is contingent on a restructuring of the board of directors. Pershing Square has proposed appointing Michael Ovitz, described as "one of the world's best-known entertainment industry executives," as Chairman of Universal Music. Two additional individuals affiliated with Pershing Square would also join the board.
Furthermore, the completion of the deal is conditional upon agreeing to a new employment contract and compensation package for Universal Music's CEO, Sir Lucian Grainge.
Universal Music was spun off from French media conglomerate Vivendi. Its controlling shareholder, Vincent Bolloré, retained a stake valued at approximately 5.9 billion euros at the time of the spinoff. The company, whose roster includes platinum-selling artists like Lady Gaga and Taylor Swift, listed on Euronext Amsterdam in 2021 with an initial valuation of 46 billion euros.
Following the announcement, shares of Vivendi and Bolloré Group rose 11% and 6.3%, respectively.
Billionaire investor Ackman has long advocated for the world's largest music company to move its primary listing to the United States, arguing that the stock is trading at a significant discount to its intrinsic value and suffers from limited liquidity.
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