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Pershing Square Seeks to Unlock Universal Music Group's Value in Proposed Cash-and-Stock Merger

Universal Music Group (UMG.AS) shares rose 11% in early Tuesday afternoon after Pershing Square Capital Management proposed a cash-and-stock acquisition, saying the former's stock underperformance since its Euronext Amsterdam listing 4.5 years ago is unrelated to the underlying music business and can be resolved through a merger.In a nonbinding proposal, the New York-based investment adviser offered 9.4 billion euros in cash, or 5.05 euros per share, to shareholders of the music company. The offer includes 0.77 new shares for each share of UMG, which brings the total cash-and-stock consideration package to 30.4 euros apiece, a 78% premium to UMG's stock price. Shareholders may elect to receive all cash, all stock, or a combination, subject to proration.Pershing Square said the cash component would reduce the UMG stock overhang and give shareholders, including the Bolloré Group (BOL.PA), "sufficient" liquidity. It also highlighted that UMG's 2.7 billion-euro Spotify stake has not been fully credited in the stock's valuation. Following the merger, Pershing Square plans to sell the Spotify stake in the market or via a block transaction, potentially distributing up to 750 million euros in proceeds to UMG artists.Regarding UMG's capital allocation plan, the acquirer proposed to scrap the current 50% of net income dividend policy at the "new UMG" and instead target a 2% increase annually, while using all free cash flow after required investments for share repurchases.New UMG expects to generate 2.3 billion euros of cash from operations in 2027, growing to more than 3.8 billion euros by 2031, with a total of 15 billion euros available for investments, acquisitions, or share buybacks over that period.If the transaction gets regulatory and shareholder approval, UMG will merge with Pershing Square SPARC to become a Nevada corporation. Closing is expected by the end of 2026, after which the combined entity will be listed on the New York Stock Exchange and be eligible for inclusion in the S&P 500 and other indices.In a letter to UMG's board, Pershing Square recalled its initial 10% investment in UMG before the 2019 Euronext listing, emphasizing that the company remains a "high-quality, capital-light royalty on the long-term growth of global music," supported by streaming penetration and price increases that could drive high-single-digit revenue growth for the next decade and likely beyond.

-- Universal Music Group (UMG.AS) shares rose 11% in early Tuesday afternoon after Pershing Square Capital Management proposed a cash-and-stock acquisition, saying the former's stock underperformance since its Euronext Amsterdam listing 4.5 years ago is unrelated to the underlying music business and can be resolved through a merger.

In a nonbinding proposal, the New York-based investment adviser offered 9.4 billion euros in cash, or 5.05 euros per share, to shareholders of the music company. The offer includes 0.77 new shares for each share of UMG, which brings the total cash-and-stock consideration package to 30.4 euros apiece, a 78% premium to UMG's stock price. Shareholders may elect to receive all cash, all stock, or a combination, subject to proration.

Pershing Square said the cash component would reduce the UMG stock overhang and give shareholders, including the Bolloré Group (BOL.PA), "sufficient" liquidity. It also highlighted that UMG's 2.7 billion-euro Spotify stake has not been fully credited in the stock's valuation. Following the merger, Pershing Square plans to sell the Spotify stake in the market or via a block transaction, potentially distributing up to 750 million euros in proceeds to UMG artists.

Regarding UMG's capital allocation plan, the acquirer proposed to scrap the current 50% of net income dividend policy at the "new UMG" and instead target a 2% increase annually, while using all free cash flow after required investments for share repurchases.

New UMG expects to generate 2.3 billion euros of cash from operations in 2027, growing to more than 3.8 billion euros by 2031, with a total of 15 billion euros available for investments, acquisitions, or share buybacks over that period.

If the transaction gets regulatory and shareholder approval, UMG will merge with Pershing Square SPARC to become a Nevada corporation. Closing is expected by the end of 2026, after which the combined entity will be listed on the New York Stock Exchange and be eligible for inclusion in the S&P 500 and other indices.

In a letter to UMG's board, Pershing Square recalled its initial 10% investment in UMG before the 2019 Euronext listing, emphasizing that the company remains a "high-quality, capital-light royalty on the long-term growth of global music," supported by streaming penetration and price increases that could drive high-single-digit revenue growth for the next decade and likely beyond.