Universal Music shines in Amsterdam, Ackman's fund proposes 55 billion merger

(Il Sole 24 Ore Radiocor) - Universal Music Group is flying on the Amsterdam Stock Exchange after the non-binding merger proposal from Pershing Square Capital Management, the fund managed by Bill Ackman. The music major's stock is by far the biggest on the AEX index. On the Paris Stock Exchange, the Vivendi , which Umg headed before the 2021 IPO, and parent Bolloré, which are currently Umg's largest shareholders.

Pershing Square Capital Management, which itself has a 4.74 per cent stake in Umg, announced that it has submitted a non-binding proposal to the company's board of directors to acquire all outstanding shares through a business combination, 'together with a value creation plan designed to deliver significant benefits to Umg's stakeholders'. As the statement released by Pershing Square indicates, under the proposed transaction, Umg will merge with Pershing Square Sparc Holdings and the newly merged company will become a Nevada corporation ('New Umg'), listed on the New York Stock Exchange. Pershing expects the transaction to close by the end of the year. Umg shareholders will receive a total of EUR 9.4 billion in cash (or EUR 5.05 per share) and 0.77 shares of New Umg for each UMG share held. The total consideration is estimated at EUR 30.40 per share, a 78 per cent premium over Umg's pre-announcement share price of EUR 55 billion. The new company will publish financial statements according to US GAAP and will be eligible for inclusion in the S&P 500 and other indices, Pershing points out.

"The transaction will allow for the delisting of 17% of Umg's outstanding shares, while preserving the company's investment grade balance sheet and its long-term financial and strategic flexibility," the fund further points out. "Since Umg's IPO, Sir Lucian Grainge and the company's management team have done an outstanding job in cultivating and continuing to build a roster of world-class performers and generating solid trading performance," said Bill Ackman, CEO of Pershing Square. "However, Umg's share price has remained stagnant due to a combination of issues unrelated to the performance of its music business and, more importantly, all of which can be resolved with this transaction," Ackman added. Pershing Square, the statement said, believes that the underperformance of Umg's shares is due to a number of factors, including uncertainty surrounding the Bolloré Group's 18 per cent stake in the company, the postponement of Umg's US listing, the underperformance of Umg's balance sheet, which has led to a reduced return on equity, and 'investors' lack of credit in valuing Umg for its €2.7bn stake in Spotify and sub-optimal reporting, communications and shareholder engagement'.

Universal Music Group investors will closely scrutinise the proposed takeover by Bill Ackman's Pershing Square, a move that raises valid questions and calls for radical changes, say analysts at Ing in a note. Although the offer is non-binding and may fail, its cash and stock component, a review of governance and capital allocation policy, and a more careful M&A strategy will be scrutinised by shareholders, comment Ing. "We see a risk that Umg's management will decide to leave, as it wanted to have a free hand to grow in emerging markets through mergers and acquisitions, aiming for EUR 1 billion per year in the coming years. This seems a rather straightforward denial of this strategy," add the Dutch bank's analysts. According to the Universal Music Group website, the main shareholders of the company are Vivendi SE with 13.43% of the capital and 43.38% of the voting rights, the Bolloré group with 18.51% of the capital and 39.90% of the voting rights, and Tencent with 11.45% of the capital and 39.90% of the voting rights, which have a consortium agreement. As the website points out, Tencent Holdings Limited, Vivendi SE and V. Bolloré disclosed an aggregate percentage of voting rights on the basis of a voting agreement included in a consortium agreement. The shareholders also include Gic with 4.7%, as well as Pershing Square with 4.74%.