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Pershing Square Acquires 7.1% of Universal Music Group at Possible Bargain Valuation

Pershing Square Acquires 7.1% of Universal Music Group at Possible Bargain Valuation

Pershing Square Holdings fulfilled its plans on Tuesday (Aug. 10) to acquire a stake in Universal Music Group ahead of Vivendi’s spin off on Sept. 21. The high-profile hedge fund led by Bill Ackman paid about $21.78 per share and $2.8 billion in total for 7.1% of UMG’s equity. The deal values UMG at 33 billion euros ($38.7 billion) equity value. PSH and its affiliates have the right to acquire another 2.9% of UMG’s ordinary shares by Sept. 9.

Tuesday’s announcement came three weeks after Pershing Square’s special purpose acquisition company (SPAC), Pershing Square Tontine Holdings, dropped its plans to buy a 10% stake in UMG in a complicated deal at a 35 billion euros ($41 billion) valuation. After PSTH investors lost interest, driving down the share price, and the Securities and Exchange Commission objected, according to Ackman, PSTH changed course. As an alternative, Ackman said the PSH hedge fund would step in and buy between 5% and 10% of UMG’s ordinary shares.

UMG’s latest earnings help explain Ackman’s affection for the company: Revenues increased 19.6% year over year to 1.65 billion euros ($2.4 billion) and recorded music streaming revenue, the engine of the company’s long-term growth, rose 23.8% to 1.12 billion euros ($1.35 billion).

“There’s no business I have more confidence in the long-term trajectory of than this company — or the music industry in general,” Ackman told Billboard in July. “Piracy almost killed this business and streaming has made it better than it was with CDs and records in the ’90s.”

Ackman could be getting a bargain as UMG’s equity is arguably worth far more than 33 billion euros, according to a dozen analysts who cover Vivendi. The 12 reports examined by Billboard have an average valuation of 40.2 billion euros, giving PSH 22% upside on this investment. UMG could be worth far more: In a July 29 report following UMG’s strong second-quarter earnings, J.P. Morgan analysts predicted that its $62 million valuation — the highest of the dozen analyst valuations — “will ultimately prove conservative.”

This story is developing. 

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