Vivendi’s 70% Universal Music Group sell-off is getting… complicated

Arnaud de Puyfontaine, CEO, Vivendi

At the close of last week, Vivendi’s plan to sell off 70% of Universal Music Group seemed simple enough.

The French company planned to – and still plans to – spin out 60% of UMG onto the Amsterdam stock exchange in September (September 21, to be precise).

In addition, Vivendi was to sell 10% of UMG in a $4 billion transaction to Bill Ackman’s US-based SPAC, Pershing Square Tontine Holdings (PSTH).

That all changed today, when Ackman announced that his SPAC was cancelling its acquisition, and transferring its share purchase agreement to Pershing Square Holdings Ltd.

That, though, isn’t the end of the matter.

According to a statement from Vivendi issued today (July 19) regarding Bill Ackman’s switcheroo: “The equity interest eventually acquired [by Pershing Square] in UMG will now be comprised between 5 and 10%. If it were less than 10%, Vivendi still intends to sell the shortfall to other investors before the distribution of 60% of the share capital of UMG to the shareholders of Vivendi scheduled to occur on September 21, 2021.”

Oh yes – things are getting complicated.

Just in case you didn’t pick it up from Vivendi’s statement: despite having a share agreement to buy 10% of UMG, it transpires that Pershing Square Holdings Ltd. now might not do so, and may instead acquire a smaller amount of the major music company (somewhere between 5% and 10%).

Should this occur, Vivendi will be in a race to sell off the difference to a new, additional buyer. (For example, if Pershing buys 6% of UMG, Vivendi will then get busy flogging 4% of UMG to would-be buyers, and looking to get a deal done before September 21.)

Should Vivendi successfully offload the 70% of UMG it’s expected to by September 21 (i.e. 60% in the Amsterdam listing and a further 10% to Pershing / Pershing plus an additional suitor) it would mean that the French company had sold some 90% of Universal in the past 18 months.

Vivendi initially sold 10% of UMG to a consortium led by China’s Tencent in Q1 2020, before selling the same consortium an additional 10% in Q1 this year.

Each of those deals cost the Tencent-led consortium €3 billion ($3.5 billion at current exchange rates).

Daniel Kerven, JP Morgan Cazenove’s Head of European Media and Internet Equity Research, suggested in February that his company was now suggesting “a blue sky valuation of €100 billion” for Universal Music Group.

Explaining PSTH’s decision to scrap its UMG 10% acquisition earlier today, Bill Ackman wrote: “Our share price has fallen by 18% since the transaction was announced on June 4th. While we believe our shareholders recognize UMG’s extraordinary attributes including its attractive growth characteristics, business quality, and superb management team, we underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure.

“We also underestimated the transaction’s potential impact on investors who are unable to hold foreign securities, who margin their shares, or who own call options on our stock.”Music Business Worldwide