French media conglomerate Vivendi has officially sold a 10% chunk of its prized-plum Universal Music Group to a US-led SPAC.
Digital Music News first reported rumblings of the SPAC deal — which values Universal Music Group at north of $40 billion — earlier this month. Now, the deal for a 10% stake in Vivendi’s crown jewel has been officially sealed, with the Bill Ackman-led Pershing Square Tontine Holdings officially making the acquisition. In total, the deal was finalized for 35 billion euros, or roughly $42 billion including debt.
A special purpose acquisition company, or SPAC, is essentially a ‘blank check’ company that has already gone public. Once its tranche of funds is secured, the SPAC then decides what to gobble up. In this case, Pershing decided to plunk down approximately $4 billion for the 10% stake, with a lucrative surge in recording and publishing valuations motivating the buy.
The SPAC deal means that 30% of Universal Music Group is now owned by foreign entities. Alongside the Pershing 10% share, a consortium led by Tencent Holdings Ltd. owns a 20% after doubling its stake earlier this year. That leaves a 70% stake still owned by Vivendi, though the French conglomerate has indicated that it plans to retain 10% and IPO the remaining 60% on the Euronext Amsterdam.
“After the 20% equity stake acquired by the Consortium led by the Tencent group, the arrival of major American investors provides further evidence of UMG’s global success and attractiveness,” Vivendi offered in a statement.
Incidentally, Vivendi’s decision to keep a substantial majority stake has forced Pershing Square to hold the line at 10%. Ackman’s SPAC confirmed that it had an interest in acquiring a greater share, but will now use its remaining IPO ammo on another acquisition. Once UMG goes public in Amsterdam, Pershing investors will enjoy a nice opportunity to cash out.
After that, this gets even more interesting for Pershing Square Tontine Holdings investors. According to Bloomberg, Pershing shareholders will then be given first dibs on a ‘special purpose acquisition rights company,’ or ‘SPARC.’
Sounds like a clever way to parcel out UMG shares and pump the valuation. But not everyone is so thrilled with the plan. “Selling off pieces of UMG to other investors in return for cash is a sub-optimal capital allocation decision. We would prefer Vivendi spin off its entire ownership of UMG to the shareholders in a tax-efficient manner,” Artisan Partners portfolio manager David Samra relayed to Bloomberg.
Artisan ranks as the 11th-largest shareholder in Vivendi.