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Friday, October 15, 2021

A $4 Billion Iconic Transaction looming as 10% of Universal is set to be sold to Pershing Square Spac

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On June 4th 2021, The New York-based Pershing Square Tontine Holdings (PSTH) confirmed their purchase of 10% share of the Universal Music Group.  This share was acquired for approximately $4 Billion – a one of a kind sale.  

The PSTH led by billionaire CEO Bill Ackman is listed with the NYSE and affiliated with the Pershing Square Holdings. 

bill Hackman, universal music group, pershing square
. Bill Ackman (Photo by Bryan Bedder/Getty Images for The New York Times )

Both Pershing Square and Vivendi confirmed that the proposed transaction would represent an enterprise value for UMG valued at $42.4 billion at current exchange rates.  

The PSTH was happy with the deal terming it one of a kind according to their statement.  “The deal was subject to the completion of mutually satisfactory transaction documentation, but it is not subject to additional due diligence.”    

“Universal Music Group is one of the greatest businesses in the world.  Led by Sir Lucian Grainge it has one of the most outstanding management teams that I have ever encountered.” Said Bill Ackman, CEO PSTH  

“Importantly, UMG meets all of our acquisition criteria and investment principles as it is the world’s leading music company, with a royalty on the growing global demand for music. We are delighted to work with Vivendi on this iconic transaction, and look forward to its consummation.”

UMG and PSTH will not combine into one company following this transaction unlike most SPAC businesses.  

After Vivendi completes its previously announced listing of the UMG on the Euronext Amsterdam, PSTH hopes to distribute its acquired 10% of UMG shares to its shareholders. This will take place later in the year. 

Should the PSTH transaction go through, some of the 60% of UMG will be spun out and that would leave the remaining 40% of UMG divided up thusly:  10% to Vivendi, 10% to PSTH, and 20% to a consortium led by Tencent Holdings.   

On its purchase, the PSTH told its shareholders that the UMG offered some strategic attributes and competitive advantages.  They include

  • Top best industry market share in a stable competitive environment
  • Substantial and growing total addressable market
  • Unbeatable and excellent management team
  • Global consumer adoption of streaming will generate many years of high growth
  • Recurring and predictable revenue streams that require minimal capital despite high growth
  • Irreplaceable owned IP and must-have content
  • Substantial fixed-cost expense base allowing for long-term margin expansion
  • Minimal financial leverage (<1x Net Debt / EBITDA)
  • UMG will have an independent, high quality board of directors
  • UMG will be the only uncontrolled, pure-play major music content company

Finding this transaction 

The PSTH expects to fund this huge transaction with cash held in its trust account from its IPO on the NYSE, which is around $4 billion plus interest.   They also have approximately $1.6 billion in additional funds from the exercise of its Forward Purchase Agreements with the Pershing Square Funds and affiliates.

Out of these finances, approximately $4.1 billion of these proceeds will be used to acquire the UMG shares and pay for the transaction costs.  PSTH Remainco will retain the $1.5 billion balance.   


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