My college buddy Bill Ackman of Pershing Square made headlines today…
Ackman made headlines today by proposing a nearly $65 billion deal to acquire the Universal Music Group (UMG.AS) record label.
Universal is the largest music company in the world, representing many best-selling artists including Taylor Swift, Drake, Billie Eilish, The Weeknd, Kendrick Lamar, Post Malone, Ariana Grande, Elton John, and Coldplay.
It’s the largest of the Big Three record labels, alongside Warner Music Group and Sony Music Entertainment. The three labels together control more than 84% of the global music market.
In a letter he released this morning to the UMG’s board, Ackman laid out a plan to merge the label with his shell company, Pershing Square SPARC Holdings. The deal would move UMG’s primary stock listing from Amsterdam to the New York Stock Exchange.
The stock popped more than 11% on the news. But it remains well below its 2024 highs and even its closing price after its IPO in September 2021, as you can see in this chart:
UMG Is an Excellent Business With Untapped Value
I last wrote about UMG on September 22, 2021, the day after its initial public offering. In that article, I highlighted what an exceptional business it is.
Ackman hosted a conference call this morning to explain his proposal and answer questions. As outlined in the slide below, he believes his plan will unlock value in four primary ways:
Ackman also believes that UMG can increase margins over time, as shown in this slide:
As a result, he believes the stock can roughly quadruple over the next five years:
I’m Optimistic UMG Shareholders Will Take the Deal
Pershing Square’s proposal offers a minimum of 22 euros per share to current shareholders who choose to take 100% cash. It projects a share price above 30 euros by the end of the year.
So why is the stock, even after today’s jump, trading around only 19 euros?
Because investors are skeptical that the deal will go through…
A two-thirds majority of shareholders would need to approve it, and some large shareholders could block it.
Billionaire Vincent Bolloré via his family company is UMG’s biggest shareholder, with a more than 18% stake. His media holding, Vivendi, owns another 10%. Chinese company Tencent controls about 11%.
As this Financial Review article about the deal notes:
Unless Bolloré supports the move, the “proposal looks very much dead from the start,” Nicolas Marmurek, an analyst at [merger and acquisition] specialists Square Global, said in a note. “We doubt Bolloré will accept such terms, and had Bolloré been on board he would be recommending the transaction. This is very much a move by Pershing Square to put the proposal in front of shareholders.”
In his conference call, Ackman said he shared his proposal with Bolloré, who replied, according to Ackman, “This is music to my ears.”
Having known Ackman for 40 years, I can say that he’s not only one of the smartest and most creative investors in the world, but also one of the most persistent. So I’m more optimistic than the market that shareholders will approve the deal.
Editor’s Note: This article was adapted from today’s edition of Whitney Tilson’s Daily. Every day, Whitney emails his readers with his comments on the most important topics of the day, including stocks he’s investigating… great articles he has read… his media and podcast appearances. You can sign up here to receive all of Whitney’s daily thoughts and insights.
