With regulators swirling and investors rebelling, Bill Ackman rethinks plans for Universal Music

July 19, 2021, 10:36 AM UTC

Bill Ackman will buy a stake in Universal Music Group with his hedge fund rather than his blank-check company after U.S. regulators looked set to block the planned deal and investors balked at its complexity.

Ackman’s special purpose acquisition company, Pershing Square Tontine Holdings Ltd., will withdraw its offer for a 10% stake, he said in a letter on Monday. His hedge fund, Pershing Square Holdings Ltd., will assume the share purchase agreement, and buy 5% to 10% of the music label, UMG’s owner Vivendi SE said in a separate statement.

Pershing Square Tontine had planned to distribute the Universal Music shares to its investors after a public listing of the music business in Amsterdam later this year. Investors would’ve also gotten the right to acquire a stake in a new vehicle known as a special purpose acquisition rights company, or SPARC. The deal would’ve effectively shrunk the size of Ackman’s blank-check company, allowing it to go after smaller targets.

That complexity may have been too much for the SPAC’s shareholders. Pershing Square Tontine’s share price has declined about 18% since the deal talks were announced on June 4.

“It was an ill-fated transaction doomed to fail and it did,” said Bluebell Capital Partners Chief Investment Officer Giuseppe Bivona, who had launched an activist campaign against the company earlier this year and still owns Vivendi shares. “There’s not much we know at this stage but it doesn’t seem to be just the change in entities. It’s not clear if Pershing Square is buying the full 10%.”

Ackman said he hadn’t anticipated shareholders’ reaction to the deal’s structure and its “potential impact on investors who are unable to hold foreign securities, who margin their shares, or who own call options on our stock.” The SPAC now has 18 months to close a new deal under its current shareholder agreement.

Vivendi shares fell 0.9% at 10:45 a.m. in Paris trading.

Pershing Square Tontine said that while it had multiple discussions with the U.S. Securities and Exchange Commission trying to address the regulator’s concerns, it “did not believe PSTH would be able to consummate the transaction.” The regulator was particularly worried that the deal structure wouldn’t qualify for New York Stock Exchange rules.

Pershing Square is not leaving Vivendi “at the altar” and will take on an indemnity agreement with Vivendi and transaction costs, the billionaire fund manager said in the letter. The hedge fund intends to be a “long-term UMG shareholder.”

The original deal would have valued the home of Taylor Swift, Drake and Billie Eilish at 35 billion euros ($41.3 billion) including debt.

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