Bill Ackman's Pershing Square proposes $64 billion merger with Universal Music Group, could value shares at 78% premium

American billionaire Bill Ackman's Pershing Square has proposed a $64 billion deal to merge Universal Music Group (UMG) with its investment fund to revive the labels valuation with a listing in the United States, as per a Reuters report.

UMG, which houses international artists including Billie Eilish, Drake and Taylor Swift, would have shares valued at 78% premium, near 30.40 euros each, compared to last close price of 17.10 euros, following Pershing Square's cash-and-shares offer. It makes the deal worth 55.75 billion euros ($64.31 billion), Reuters calculated.

UMG declined to respond to Reuters queries. The Amsterdam-listed label's shares rose 12% today, while top shareholder Bollore Group climbed 7%.

"The offer is non-binding and might well fail but we think at a minimum it has the merit of raising valid questions and making the case for dramatic changes," said analysts at ING, adding that they expected investors to carefully consider the proposal.

New York listing to boost UMG shares?

The move by Pershing comes after UMG in March delayed plans for a US listing, where Pershing exercised its right to request a US offering and had argued that listing in NY would boost UMG's share price and liquidity. The influx of artificial intelligence has hit labels, including big three Sony, Warner Music and UMG hard.

Its shares have lost almost a third of their value since its listing in 2021 and currently trade at a long-term multiple of 21.8 times earnings, compared with Spotify's 40 times, according to LSEG data.

In a letter to UMG directors, Ackman said its management had done an “excellent” job of running a strong business and strategic execution. But he blamed uncertainty over the 18% stake held by Bollore Group, the delay to the planned U.S. listing and underutilisation of its balance sheet, among other things, for its low share price.

Under Tuesday's proposal, Pershing's SPARC Holdings would merge with UMG, and the new entity would become a Nevada corporation listed on the New York Stock Exchange.

Disney's Ovitz to join as Chairman of board as part of deal

Talent agent and former Walt Disney Company president Michael Ovitz would join the board as chairman with two Pershing representatives also taking seats, Ackman's letter said.

The deal could prompt UMG management to leave, the ING analysts said, given that they had wanted a free hand in growing in emerging markets through M&A deals targeting 1 billion euros a year over the next few years.

“This seems a rather direct rebuttal of this strategy,” they said.

Pershing Square said that under the transaction UMG shareholders would receive a total of 9.4 billion euros in cash and 0.77 shares in the new company for every share held in UMG.

The cash portion of the new proposed deal would be funded by Pershing from its SPARC's rights holders, debt, and net proceeds from the company's stake in Spotify, it said.

The transaction would be subject to approval by the UMG and SPARC boards, a two-thirds vote in favour by UMG shareholders in attendance at a meeting and required regulatory approvals, it said.

Bollore Group did not immediately respond to a request for comment.

Vivendi, which is UMG's second-largest shareholder, declined to comment on the proposal.

Tencent Holdings, UMG's third-biggest shareholder, did not immediately respond to a request for comment.

The transaction is expected to close by the end of the year, Pershing Square said. It currently has a 4.7% stake according to LSEG data, making it UMG's fourth-biggest shareholder.

(With inputs from Reuters)