Pershing Square (LON:PSH) CEO and Portfolio Manager Bill Ackman outlined a proposed transaction aimed at reshaping Universal Music Group’s corporate structure, capital allocation, governance, and investor communications, arguing the changes could address what he described as a persistent valuation disconnect despite strong operating performance.
Ackman said the company’s revenue has grown 60% and adjusted EBITDA has risen 70% since UMG’s public listing, but the stock has declined, citing a drop of 39% from its peak and 23% from the listing price. He attributed the re-rating to a combination of factors, including uncertainty following Cyrille Bolloré’s resignation from the UMG board, a postponed U.S. listing, deleveraging that reduced return on equity, limited clarity on capital allocation, a lack of per-share metrics in guidance, and what he characterized as inadequate investor relations and disclosure.
Proposed merger structure and shareholder consideration
According to Ackman, the transaction’s “economic substance” includes UMG effectively buying back shares at €22 and canceling 17% of shares outstanding. He said New UMG would have 1.541 billion shares outstanding post-transaction.
Ryan Israel, Pershing Square’s CIO, provided additional detail on funding, saying €9.4 billion of cash would support the cash portion of the consideration. He said the sources include:
- €2.5 billion from Pershing Square funds/affiliates and SPARC rights holders (backstopped by Pershing Square), with €1.4 billion from Pershing Square and €1.1 billion from SPARC
- €5.4 billion of incremental investment-grade debt to move leverage to a 2.5x net debt/adjusted EBITDA target
- €1.5 billion from net proceeds of selling UMG’s Spotify stake (after taxes and an artist share)
Israel said Pershing Square is already a 4.6% shareholder and would increase its ownership to 11.7% after the transaction and share cancellation.
Balance sheet leverage, Spotify sale, and dividend policy
Ackman said the proposal includes monetizing UMG’s roughly €2.7 billion Spotify stake, noting that other major labels have sold their stakes and shared proceeds with artists. He estimated approximately €480 million in taxes and an artist share of about €750 million, calling the plan “very pro-artist.” He added that the transaction would distribute about €1.5 billion to shareholders from the Spotify monetization.
On leverage, Ackman said UMG is “effectively unlevered” today, and the plan would move to a 2.5x leverage target while retaining investment-grade flexibility. He compared this to Warner’s leverage, arguing UMG’s market position supports the target.
On dividends, Ackman said the proposal would not cut the current dividend, but would change the policy from distributing 50% of net income to growing the dividend at 2% per year. Over time, he said, this would reduce the payout ratio and increase financial flexibility.
U.S. listing, disclosure, and governance changes
Ackman said the proposal includes listing New UMG on the New York Stock Exchange and making the company a Nevada corporation, citing a “constructive corporate regime” and reduced litigation risk, while noting flexibility to choose Delaware or Nasdaq if preferred. He argued a U.S. listing would expand the investor base, improve liquidity, align analyst coverage with U.S.-listed peers, and potentially support index inclusion, including the S&P 500.
He also emphasized changes to reporting and shareholder engagement, including filing 10-Ks and 10-Qs, more detailed quarterly disclosures, and a greater focus on per-share metrics such as EPS. Ackman said the lack of an “earnings algorithm” and per-share focus has contributed to investor confusion.
On governance, Ackman said Pershing Square proposed adding three directors to a refreshed board, including Michael Ovitz as chairman, and two representatives from Pershing Square. He also highlighted Jill Chapman, a recent Pershing Square hire and former head of investor relations at Hilton, as part of an effort to improve investor communications.
Growth outlook and AI discussion
In Q&A, Israel said the proposal does not change UMG’s operating strategy for revenue growth, but he argued growth could improve through subscriber expansion and “a very significant opportunity” for pricing, particularly as the industry shifts toward wholesale pricing.
Feroz Qayyum, a member of Pershing Square’s UMG investment team, addressed concerns about AI’s impact on music. He said the proliferation of content is not new and argued labels remain important for curation and artist differentiation. He said much music is “unmonetized” under newer DSP agreements, and cited data he attributed to Spotify reporting that major label share increased even as the majors’ share of total uploaded content declined. He added that AI may also create operational efficiencies in areas like legal work, A&R analytics, and marketing.
Ackman also discussed shareholder approval requirements, noting the deal would require a two-thirds vote of shareholders attending a meeting, and said Bolloré Group’s support is critical given its approximately 28% stake. Ackman said he spoke with Bolloré Group and characterized the initial response as favorable, while emphasizing that details still need review and that board and management support would be required to complete the transaction.
About Pershing Square (LON:PSH)
Pershing Square Holdings (LN:PSHD) is an investment holding company structured as a closed-ended fund that makes concentrated investments in publicly traded, principally North American-domiciled, companies. The investment objective is to maximize long-term compound annual rate of growth in intrinsic value per share.
