Billionaire investor Bill Ackman confirmed on Friday that his special-purpose acquisition company is in talks to spend about $4 billion for a 10% stake in Universal Music Group. He also unveiled plans to launch a new investment vehicle and deploy up to $14 billion on future transactions.
Ackman’s SPAC, Pershing Square Tontine Holdings, hopes to acquire the UMG shares from Vivendi, a French media conglomerate. Vivendi plans to list UMG on the Euronext Amsterdam exchange in the third quarter of this year, and PSTH shareholders would receive their UMG shares shortly afterward.
“Universal Music Group is one of the greatest businesses in the world,” Ackman said in a press release, adding his target was “the world’s leading music company, with a royalty on the growing demand for music.”
The Pershing Square Capital Management chief also touted the deal as an “iconic transaction.” He highlighted UMG’s leading market share, stellar management, exposure to streaming music, minimal capital needs, and several other attributes that attracted him to the business.
“Thank you for your patience Tontards!” Ackman tweeted, referring to the retail investors on Reddit who have been closely following the SPAC deal and speculating on the identity of his target for months.
PSTH will finance the deal with the $4 billion plus interest it garnered from its IPO last summer, and another $1.6 billion from Pershing Square funds and affiliates. It will use $4.1 billion of that sum to acquire Universal Music and cover its costs, leaving $1.5 billion to spare.
Unusually, PSTH will remain a public company after the transaction, but will no longer be treated as a SPAC. Ackman’s hedge fund and its affiliates have the right to buy another $1.4 billion of PSTH stock, meaning the vehicle could be armed with almost $3 billion to pursue another business combination.
Separately, a Pershing Square affiliate has formed Pershing Square SPARC Holdings to sniff out another megadeal. The vehicle plans to distribute transferable rights to purchase its shares for $20 a pop to PSTH shareholders. Those rights can only be exercised after the SPARC (special-purpose acquisition rights company) reaches a definitive agreement with a target.
If all of the rights are exercised, the SPARC would raise $5.6 billion. It also intends to tap Pershing Square affiliates for another $1 billion to $5 billion of investment.
As a result, the SPARC would have between $6.6 billion and $10.6 billion to pursue a business combination. The vehicle’s novel structure promises to avoid several of the disadvantages of a SPAC. It won’t lock up capital, as investors can’t exercise their rights or buy shares in the SPARC until a deal has been struck, and it doesn’t have to close a deal within two years.
Ackman’s team will file a confidential registration statement for the SPARC with the SEC shortly. They cautioned that there’s no guarantee it will be approved in the proposed form, or at all.