Universal Music Group: Billionaire plans takeover of business linked with The Beatles, Queen and Taylor Swift
Bill Ackman’s Pershing Square investment vehicle has offered to buy music studios giant Universal Music Group (UMG).
The US billionaire’s firm has proposed a cash and stock deal to take control of the Dutch-US business, which runs Abbey Road studios and labels including EMI and Island Records.
Universal is the world’s largest music company and owns extensive music catalogues from artists including The Beatles, Queen, Adele, Taylor Swift and Kendrick Lamar. It is estimated that the deal would value Universal at around 55 billion euros (£48bn). The studio giant would merge with a newly-formed blank-cheque company set up by Pershing Square as part of the deal.
Pershing Square, which already owns a stake in Universal, said Universal investors would receive 5.05 US dollars (£3.81) in cash and 0.77 shares in the new company for each Universal share they currently own.
Mr Ackman, chief executive of Pershing Square, said the group’s share price has “languished” as he claimed that the proposal could help drive an improvement in performance.
He said: “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.
“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.”
Mr Ackman also said the group had partly underperformed in recent years due to “uncertainty” related to the Bollore Group’s 18 per cent stake in the company. He also highlighted postponed plans to list the business, which currently has a primary listing in the Netherlands, in the US. The group postponed plans for a stock market listing in the US last month in the face of market uncertainty.
Dan Coatsworth, head of markets at AJ Bell, said: “Bill Ackman has long admired Warren Buffett’s style of finding good companies going cheap and buying them outright. Ackman has now gone full-on Buffett with a takeover offer for Universal Music Group (UMG) via one of his Pershing Square investment vehicles.
“Pershing Square is currently the fourth largest shareholder in Amsterdam-listed UMG with a 4.7 per cent stake.
"French billionaire Vincent Bollore is the one who needs to be convinced by Ackman’s proposal, given his company owns 18.5 per cent of UMG and additional exposure through 30 per cent-owned Vivendi which hold 13.4 per cent of UMG.
"China’s Tencent is also a major shareholder with an 11.4 per cent stake. Those are chunky stakes, and so Ackman will need a full-on charm offensive to win them over.
“Ackman has previously argued that UMG would be better served on the US stock market where investors might attribute a higher valuation. The business floated to much fanfare in 2021 and commanded a premium rating, initially trading on nearly 35 times forward earnings. That rating quickly eased to around 25-times, but it’s dropped dramatically to 16-times since last summer. That’s down to a mix of concerns around the pace of growth and a shift in interest rate expectations.
"Rates staying higher for longer is bad news for a long duration company like UMG as that has a negative impact when calculating what its future cash flows are worth today."