Is the world's largest record company changing hands? Bill Ackman plans to acquire Universal Music for $63 billion, and Taylor Swift's former label may go public in the U.S.

Why does AI Ackman firmly believe that relocating to New York can solve the low valuation of Universal Music?

Bill Ackman’s Pershing Square Capital has made an acquisition offer to the world’s largest record company, Universal Music Group, offering approximately 55 billion euros (over 63 billion USD), and plans to move its stock listing from Amsterdam to the New York Stock Exchange.

According to The Wall Street Journal on Tuesday, the deal is expected to be completed by the end of this year, with the specific plan being a merger between Universal Music and Pershing Square’s SEC-registered acquisition vehicle, Pershing Square Sparc Holdings. After the merger, the new company will be registered in Nevada.

Ackman stated in a release, “The long-term underperformance of Universal Music’s stock price is due to a series of issues unrelated to its music business performance, and these issues can be addressed through this transaction.”

Universal Music’s stock has fallen more than 20% over the past six months, mainly due to concerns that artificial intelligence could compress profit margins in the music industry. If this acquisition offer materializes, it will be one of the largest M&A deals in the entertainment industry in recent years, directly changing the capital structure and listing pattern of this music giant, which owns top artists like Taylor Swift and Kendrick Lamar.

Transaction Structure: Cash plus stock, at €30.40 per share

According to Pershing Square’s statement, Universal Music shareholders will receive €5.05 in cash and 0.77 shares of the new company for each share of Universal Music they hold, with a total cash amount of about €9.4 billion. Based on this, the per-share price is approximately €30.40 (about $35.09), and the overall valuation of Universal Music’s equity is about €55 billion.

Pershing Square has held shares in Universal Music since 2021. Ackman previously served on the Universal Music board of directors until he resigned last May. According to The Wall Street Journal, Ackman had been pushing for the company to go public in the U.S. during his tenure.

Low Stock Price and Valuation Discount: Ackman Lists Three Major Issues

Pershing Square pointed out three factors in its statement that are dragging down Universal Music’s valuation.

First, the company lacks publicly disclosed capital allocation plans; second, the market has not fully reflected the value of Universal Music’s stake in the music streaming platform Spotify; third, the outlook for the 18% stake held by the Bolloré Group, owned by French billionaire Vincent Bolloré’s family, is uncertain, raising doubts about the company’s controlling structure.

In 2021, Bolloré Group spun off Universal Music from its French media conglomerate Vivendi. Currently, Tencent from China is the second-largest shareholder of Universal Music, holding 11.4%.

As of press time, both Universal Music and the Bolloré family spokespersons have not responded to the above acquisition offer.

Relocating to New York: A Key Step to Unlock Higher Valuation

One of the core logics of this deal is to move Universal Music’s listing from Europe to the U.S. capital markets. Universal Music was listed on the Euronext Amsterdam in September 2021, with its operational headquarters in Santa Monica, California, and its registered office in Hilversum, Netherlands.

Ackman believes that the liquidity and valuation system in Europe do not fully reflect Universal Music’s intrinsic value, and moving to the New York Stock Exchange will help attract a broader range of U.S. institutional investors and promote a valuation re-rating. After the merger, the new company will be registered in Nevada.

Last year, Universal Music announced plans to issue some of its Pershing Square-held shares in the U.S., but this full merger plan is evidently a further step with greater scale and ambition.