France-based Vivendi, parent of Universal Music Group, has sold 7.1% of that company’s share capital to Pershing Square Holdings, the investment firm managed by billionaire Bill Ackman, for $2.8 billion, with the possibility to sell him a further 2.9% by September 9, 2021. The deal values UMG — the world’s largest music company — at 35 billion Euros, or around $41 billion.
The announcement follows news last month that Ackman decided not to use his SPAC to acquire the 10% stake in UMG after the Securities and Exchange Commission voiced concerns about the complicated agreement, which would have been the biggest SPAC transaction to date.
As promised, Ackman used his hedge fund to buy the stake directly instead. UMG parent company Vivendi had previously announced that UMG would be spun off as a standalone entity to trade on Euronext after it distributes 60% of UMG to its shareholders by September. It confirmed in an announcement that if Ackman’s share is less than 10%, it will sell the shortfall to other investors.
“Vivendi sold today 7.1% of UMG’s share capital to Pershing Square Holdings and affiliates, which are managed by Mr. William Ackman, for a price of USD 2.8 billion based on an enterprise value of €35 billion for 100% of UMG’s share capital,” the announcement reads. “Mr. Ackman has the right to acquire, by September 9, 2021, up to an additional 2.9% of UMG’s share capital through funds which he manages or in which he holds the majority of economic interest, based on the same valuation. Vivendi is very satisfied with the arrival at UMG of Mr. Ackman, a major American investor, providing once again evidence of the music company’s global success and attractiveness.”
In a conference with investors last month, Ackman laid out his confidence in the proposed deal. “The best analogy we can make here is what’s happened to software, and some of most highly valued companies in the world are software companies,” Ackman said in the meeting, according to the Wall Street Journal. “I’m confident in 25 years, 50 years, 100 years, Universal will be very high on the list of great companies.”
While the outcome of that prediction will take some time to play out, Ackman has just under a month to rally the resources to purchase the additional 2.9% that remains in order to reach his original target of 10% of UMG.
While the sale of UMG will represent a windfall for Vivendi’s top executives and shareholders, the music group has long been the biggest driver of the company’s success. Vivendi’s prospects may seem considerably dimmer once this deal is done.