Media

Pershing Square Bids for Universal Music Group at 78% Premium

Is Pershing Square's merger offer a value-unlocking opportunity for UMG or an unsolicited bid that deserves serious scrutiny?

Published APR 8

#Media

Pershing Square Bids for Universal Music Group at 78% Premium

Story

Above: Signage at the Universal Music Group headquarters in Santa Monica, California, on Apr. 7. Image credit: Ethan Swope/Bloomberg/Getty Images

The Facts

Pershing Square submitted a roughly $64 billion non-binding proposal to acquire all 1.541 billion outstanding shares in Universal Music Group (UMG) on Tuesday, through a merger with Pershing Square's acquisition company, SPARC Holdings.
Business Wire
Pershing Square
The Wall Street Journal
Sherwood News
The offer values UMG at approximately €30.40 (around $35) per share — a 78% premium to its last closing price of €17.11 on April 2. The valuation comprises €5.05 in cash and 0.77 shares of New UMG stock, with a total cash consideration of €9.4 billion.
Pershing Square
Business Wire
Pershing Square intends to fund the cash portion of the offering by making a €2.5 billion contribution, raising €5.4 billion in additional investment-grade debt at New UMG and selling UMG's Spotify stake for €1.5 billion, of which UMG artists will receive up to €750 million.
Pershing Square
If accepted, SPARC Holdings and UMG would merge to become a Nevada corporation listed on the New York Stock Exchange (NYSE) and, after filing financials under U.S. GAAP, become eligible for inclusion on the S&P 500 and other indexes, while canceling 17% of UMG's outstanding shares.
Business Wire
Pershing Square
The UMG board would also be revamped, with former Hollywood agent Michael Ovitz — whose clients included Madonna and Michael Jackson — named as chairman, alongside two Pershing Square affiliates and a new employment contract for CEO Sir Lucian Grainge.
Pershing Square
Al Jazeera
Markets reacted positively to the development for UMG, with its stock price rising by roughly 11% following news of the offer. Despite this, the company's share price remains approximately 15% lower than at the same time last year, an underperformance that Pershing Square promises its acquisition would resolve.
CNBC
New York Post
Google Finance
Pershing Square

Sources Split

LEFT

CENTER

RIGHT

ESTAB
CRIT

CENTER

PRO
ESTAB

The Spin

Narrative A

Despite its revenues and EBITDA growing 60% and 70%, respectively, UMG's stock has cratered 23% since its 2021 listing. This situation is indicative not of a broken company, but rather of structural issues holding it back. Pershing Square's proposal will address these problems, helping to unlock shareholder value and put UMG where it belongs, on the NYSE.

Pershing Square

Narrative B

Investors should avoid any speculation at this early stage. Pershing Square's proposal, after all, was both unsolicited and non-binding, meaning it carries zero obligation. In the meantime, the UMG board, which has total confidence in Grainge's leadership and the existing strategy, will conduct a thorough review in the interest of shareholders, artists and employees.