A blank-cheque company backed by hedge fund billionaire Bill Ackman is to buy a 10 per cent stake in Universal Music Group, Taylor Swift’s label, for $4bn, it confirmed on Sunday.
As part of the transaction, a first of its kind for a special acquisition company, Pershing Square Tontine Holdings, Ackman’s investment vehicle, will distribute the shares to its shareholders only after Vivendi, UMG’s French owner, completes its planned listing of the stock on Euronext Amsterdam.
PSTH will continue to exist after the transaction with access to up to $2.9bn in cash, and “intends to pursue a business combination with an operating business promptly”. PSTH said the enterprise value of the new deal was €35bn.
Confirmation of the deal, reported earlier this month by the Financial Times, comes as Vivendi tries to squeeze cash out of its lucrative unit amid a rise in profits in the music business.
The French media group, controlled by the billionaire Vincent Bolloré, previously sold 20 per cent of Universal to China’s Tencent.
In an email sent to his staff on Sunday, Lucian Grainge, UMG’s chief executive, hailed the deal with Ackman as part of a “new chapter” for the label.
“As you can see from PSTH’s announcement, this investment represents a strong validation of UMG, our strategy, our people, our legendary catalogue and our amazing roster of artists and songwriters,” he wrote.
“And the fact that we now have, in addition to Vivendi, two committed investors — the consortium led by Tencent, as well as PSTH — is as powerful an endorsement as one could imagine from the investment and technology communities. ”
PSTH beat back competition from private equity firm Hellman & Friedman, which had offered to buy a 10 per cent stake in Universal at a €30bn valuation.
Music companies have gained value in recent years because of rising royalty payments from streaming services such as Spotify.
PSTH’s statement pointed to UMG’s operating profit growth of more than 20 per cent per year since 2017 and analysts’ expectation for profits of more than €1.5bn in 2021, a 19 per cent operating profit margin.
Universal, home to acts including Kanye West and Lady Gaga, commands an almost 30 per cent share of the market, according to Midia Research estimates.
Spacs are investment vehicles that raise money through public listings in order to find private businesses to take public, although increased regulatory scrutiny has slowed the number of listings lately.