Pershing Square Capital has offered to buy Universal Music Group (UMG) at a price equivalent to a 78% premium. 

The deal would shift the world’s biggest record label, home to artists Taylor Swift and Kendrick Lamar, from an Amsterdam to New York listing. It values each Universal share at €30.40, placing the company’s overall worth at €55bn.

The transaction would entail a merger with Pershing Square SPARC Holdings, a blank cheque acquisition vehicle set up by CEO Bill Ackman. 

The company has long been esteemed by Ackman and was initially meant to go public via a combination with another Pershing acquisition vehicle in 2021. However, it failed regulatory hurdles. 

Instead, London-listed investment trust Pershing Square Holdings (PSH) acquired a 10% stake in the company, and continues to hold a large position, reaching 13% by the end of last year. 

Under the terms of the proposal, shareholders will receive a total of €9.4bn in cash, equivalent to €5.05 per share, and 0.77 shares of ‘New UMG’ for every current share they own.

Universal shares, which have in Ackman’s words ‘languished’ over the past six months, falling more than 30% amid concerns that AI could squeeze the music industry’s profits, were up 11% in early morning trading. 

In a letter to the UMG board, Ackman explained that several external factors, rather than business performance, had driven the share price weakness, including uncertainty around a 18% stake controlled by French billionare Vincent Bolloré and the postponement of the company’s US listing.

‘UMG’s stock price has languished due to a combination of issues that are unrelated to the performance of its music business and importantly, all of them can be addressed with this transaction,’ he said. 

The news comes in a bustling period for Pershing, which is in the process of launching a new closed-end fund, PSUS, and closing the Buffett-style acquisition of insurance group Vantage. 

Winterflood’s Shavar Halberstadt highlighted that the fund’s recent annual report characterised the prevailing UMG share price as a ‘very large discount to intrinsic value, as the market did not appreciate recent progress made, with growth set to accelerate’.

‘Perhaps increasing the allocation to this capital light (but low obsolescence) business is also sensible portfolio rebalancing, given the capital-intensive nature of newer holdings in Alphabet, Amazon and Hertz,’ he added.