Bill Ackman SPAC Announces Universal Music Deal: Could Investors See A #1 Hit?

The long wait is over to see what Bill Ackman will acquire with the Pershing Square Tontine Holdings PSTH SPAC. Ackman confirmed the company it had been in discussions with Friday morning while also announcing another target could be on the way.

The SPAC Deal: Pershing Square Tontine Holdings confirmed discussions to acquire 10% of Universal Music Group for $4 billion. The acquisition values Universal Music Group, owned by Vivendi SE VIVHY at an enterprise value of $42 billion.

The transaction is subject to Vivendi shareholders and a June 22 shareholder meeting vote. PSTH shareholders would own 10% of UMG with Tencent Holdings ADR TCEHY owning 20% and Vivendi retaining a 10% stake.

Under the terms of the deal, PSTH shareholders will own three separately traded securities after the completion of the transaction:

• Pro-rata share of UMG ordinary shares, representing approximately $14.75 per PSTH share.
• Pro-rata share of PSTH after the distribution of the acquired UMG shares, which will have approximately $5.25 in cash per share.
• One transferrable five-year right per share (a SPAR) of Pershing Square SPARC Holdings, which is expected to trade on the NYSE.

Universal Music Group is being listed on the Euronext Amsterdam in the third quarter of 2021 in a planned spinoff from Vivendi. Once the listing is complete, PSTH shareholders will receive UMG shares.

The warrants for PSTH will not be exercisable for shares of UMG. PSTH shareholders will have the opportunity to exchange their redeemable warrants for shares of PSTH Class A common stock. Vivendi and PSTH are still discussing the treatment of sponsor and director warrants.

After the $4 billion purchase of the 10% stake in UMG, PSTH will have around $1.5 billion in cash remaining.

One SPAR will be distributed for each share of PSTH Class A common stock. If all SPARs are exercised, SPARC will raise $5.6 billion in cash from SPAR holders.

The SPARC (special purpose acquisition rights company) has a design structure to help avoid “incurring the opportunity cost of capital of a typical SPAC.” The SPARC will not be subject to a typical two-year SPAC commitment period and will have no warrants out.

About Universal Music Group: Universal Music Group is the largest music company in the world. The company owns the rights to music from artists including Lady Gaga, Taylor Swift, Billie Eilish, The Weeknd, Queen, The Beatles and Bod Dylan.

“Universal Music Group is one of the greatest businesses in the world,” Ackman said.

The leader of PSTH said UMG meets all of the acquisition criteria and is in a market seeing growing global demand.

Competitive advantages listed for UMG in the press release are having the No. 1 market share, an iconic world-class management team, massive and growing total addressable market, streaming market seeing high growth, irreplaceable owned IP, predictable recurring revenue and long-term margin expansion opportunities.

In the last fiscal year, Universal Music Group had four of the top five artists on Spotify Technology SA SPOT with Drake, J Balvin, Juice WRLD and The Weeknd. The company also had the No. 1 song for 2020 with The Weeknd's “Blinding Lights.”

In the first quarter of 2021, Universal Music set a record with the top-selling album for 17 consecutive weeks. The company also had the No. 1 song for 12 of the 13 weeks in the first quarter on Spotify.

Related Link: Bill Ackman Talks, The Timeline Reacts: What Pershing Square SPAC Is Looking At To Buy...Maybe

Music Company Valuations: A Rolling Stone article listed the valuation of Universal Music Group at a range of $29 billion to $100 billion in March.

Goldman Sachs valued Universal Music Group at $53 billion in a “Music in the Air” report earlier this year, increasing the value of the music company from $36 billion last year.

Tencent and its streaming business Tencent Music Entertainment Group - ADR TME bought a 10% stake in UMG this year to add to its existing 10% stake. The recent purchase valued Universal Music Group at $36.8 billion. 

Vivendi reported revenue of 16.09 billion euros for the last full fiscal year, up 1.2% year-over-year. UMG led the way with revenue of 7.43 billion euros ($9.0 billion USD), up 4.7% year-over-year. Recorded music was up 6.7% year-over-year, led by growth in streaming. Music publishing revenue was up 14.4% year-over-year for the last fiscal year.

EBITA for the UMB segment was 1.33 billion euros of Vivendi’s 1.63 billion euros total.

Sony Group. Corp SONY has a music business that is wholly owned by the company. Sony is valued at over $120 billion by market capitalization. Sony Music had revenue of $8.5 billion in the last fiscal year.

Warner Music Group Corp WMG trades with a market capitalization of $18 billion. The company reported revenue of $4.46 billion in the last fiscal year (ending Sept. 30) and EBITDA of $837 million.

Benzinga’s Take: Investors are not impressed with the “iconic company” Ackman is acquiring with PSTH shares. UMG is the largest music company and is getting a deal done at a lower valuation than analysts had pegged earlier this year.

The unique structure of PSTH has been a catalyst for shareholders from the start. Under the terms of the deal, shareholders will get a stake in UMG while also keeping a stake in the remainder of PSTH which could acquire an additional business.

PSTH shareholders will also get first rights to buy shares of the next Ackman-led SPAC, according to prior comments made by the investor.

PSTH Price Action: Shares of PSTH are down 9.78% to $22.60 on Friday morning at publication. 

(Photo: Via CNBC)