Pershing Square slashes Universal Music stake ahead of listing

Pershing Square has reduced its stake in top holding Universal Music Group ahead of its US listing.

Bill Ackman’s Pershing Square (PSH ) and two other Pershing Square entities have sold a 2.7% stake in Universal Music Group (UMG) for a reported €1.3bn.

According to Bloomberg, the £9.9bn fund and two Pershing Square entities sold 50m shares in the Netherlands-listed music company for €26.60 per share. Universal owns labels such as Motown Records, Decca Records, and Def Jam Recordings. 

Pershing Square, which is managed by billionaire activist investor Ackman, already had an agreement with UMG to sell $500m of shares to facilitate its planned US listing – although the total sale far exceeds this. Pershing Square was the driving force behind the plans for UMG’s secondary listing in the US, where it is headquartered.

Following the sale of the UMG stake, its position in the portfolio is reduced to 17%, but it remains the largest holding. Ackman first invested in UMG in September 2021 when it separated from Vivendi.

In full-year financial statements, Ackman highlighted the US listing as a ‘positive catalyst’ that will increase demand for UMG’s shares from institutional investors who cannot buy non-US listed companies, as well as retail investors who struggle to purchase international stocks.

He said it would also improve analyst coverage, opening up the potential for inclusion in major US indices.

‘The company also began the search for a new chief financial offer which offers the potential for improvement in shareholders’ communication and engagement’.

UMG’s shares have been volatile over the past year, falling 3% over 12 months, but Ackman said the management team has made ‘considerable progress in growing the business’.

In its second quarter results, its key growth metric – subscription and streaming revenue growth – fell from double-digit growth to mid-single digit growth.

‘Our belief was that these results represented a shorter-term development related to several idiosyncratic factors, combined with a slowdown in the overall economic environment,’ said Ackman.

‘Since then, UMG has reported strong results that show healthy underlying growth in its subscription revenues, while management has provided additional guidance that its streaming revenues will return to growth this year.’

In September, UMG set out mid-term targets of 7%-plus revenue growth, underpinned by 8% to 10% subscription revenue growth, and earnings increases.

It has already signed new agreements with streaming giants Spotify and Amazon and Ackman expects similar agreements with other major platforms to be signed.

‘We believe these new agreements will lead to higher subscription and streaming growth, as they incorporate higher wholesale rates, like-for-like retail price increases, and new product tiers for superfans,’ he said.