US hedge fund Pershing Square launches takeover bid for Universal Music

PARIS: American hedge fund Pershing Square, led by the activist investor Bill Ackman, announced Tuesday that it had offered to buy Universal Music Group in a merger, saying it believed the music giant was undervalued by stock markets.

Pershing Square said its offer to Universal shareholders included 9.4 billion euros ($10.9 billion) in cash – or 5.05 euros per share – plus 0.77 shares in the new entity for each UMG share.

Worth a total of around 55 billion euros, according to AFP calculations, the merged company would boast a stable of top artists including Taylor Swift, The Weekend and Lady Gaga.

After a merger with Pershing Square SPARC Holdings, an acquisition company, the new entity would be listed on the New York Stock Exchange.

Pershing Square hopes to close the deal by the end of 2026.

“UMG’s stock price has languished due to a combination of issues that are unrelated to the performance of its music business,” Ackman said in a statement.

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The company pointed to uncertainty about French conglomerate Bollore’s plans for its 18 percent stake in Universal, delay in listing on the US stock market, and “underutilisation of UMG’s balance sheet” among concerns that have held back the shares’ performance.

If the merger goes ahead, the new company would aim to increase its dividend payouts by two percent each year and maintain borrowing of 2.5 times its operating profit (EBITDA), Pershing Square said in a letter to Universal’s Board.

“All free cash flow after required investments in the business will be used for share repurchases,” the letter added.

Universal stock was up on the Amsterdam stock exchange following news of the offer, adding 11.7 percent to trade at 19.10 euros around 0915 GMT.