The U.S.-based hedge fund Pershing Square, led by the investor Bill Ackman, said Tuesday that it had offered to buy Universal Music Group (UMG) in a merger, suggesting it believed stock markets undervalued the music giant.
Pershing Square's cash-and-shares offer values Universal Music at around 30.40 euros ($35.15) per share, representing a 78% premium to the last close price at 17.10 euros and making the deal worth 55.75 billion euros (around $64.3 billion), according to Reuters calculations.
Universal Music Group – the company behind recording artists including Taylor Swift, Billie Eilish and Drake – did not immediately respond to a request for comment.
The Amsterdam-listed entertainment company's shares jumped around 13% in the early trading on Tuesday, while top shareholder Bollore Group's shares were up 6%.
Pershing's move comes after UMG last month delayed a plan for a U.S. listing, walking back on an agreement with Pershing, which had exercised its right to request a U.S. offering and had argued a New York listing would boost UMG's share price and liquidity.
In a letter to UMG directors, Ackman said its management had done an "excellent" job of running a strong business and strategic execution, but its share price has languished since its listing in 2021.
"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.
He blamed uncertainty over the 18% stake held by Bollore Group, the delay to the planned U.S. listing and underutilization of its balance sheet, among other things.
Under Tuesday's non-binding proposal, Pershing's SPARC Holdings would merge with UMG, and the new entity would become a Nevada corporation listed on the New York Stock Exchange (NYSE).
Talent agent and former Walt Disney Company president Michael Ovitz would join the UMG board as chairperson, Pershing Square also said.
Pershing Square said that under the transaction, UMG shareholders would receive a total of 9.4 billion euros in cash and 0.77 shares in the new company for every share held in UMG.
The cash portion of the new proposed deal would be funded by Pershing from its SPARC's rights holders, debt, and net proceeds from the company's stake in Spotify, it said.
Bollore Group did not immediately respond to a Reuters request for comment.
A spokesperson for Vivendi, which is UMG's second-largest shareholder, did not comment on the proposal.
Tencent Holdings, UMG's third-biggest shareholder, did not immediately respond to a request for a comment.
The transaction is expected to close by the end of the year, Pershing Square said. It has a 4.7% stake according to LSEG data, making it UMG's fourth-biggest shareholder.
