William Ackman-led SPAC Pershing Square Tontine Holdings (PTSH) has dropped its deal to acquire 10% of Universal Music Group, citing complications with SEC and New York Stock Exchange (NYSE) rules. The abrupt decision will force a recalculation of Universal Music Group’s $40 billion valuation.
Pershing Square Tontine Holdings (PTSH) is no longer interested in acquiring a 10% share of Universal Music Group, according to a letter to shareholders shared this morning. The abrupt cancellation follows discussions with the Security and Exchange Commission (SEC), which raised regulatory and compliance concerns, particularly as they relate to the New York Stock Exchange. The vote to cancel the deal outright was unanimous among the Pershing Square board.
“Our decision to seek an alternative initial business combination (“IBC”) was driven by issues raised by the SEC with several elements of the proposed transaction – in particular, whether the structure of our IBC qualified under the NYSE rules,” Pershing Square founder Bill Ackman wrote.
“While we are disappointed with this outcome, we continue to believe that the unique scale and favorable structure of PSTH will enable us to find a transaction that meets our standards for business quality, durable growth, and a fair price.”
The abrupt cancellation is certainly unexpected, and follows some unhappiness among Pershing Square investors.
After the Pershing announced plans to acquire the 10% stake in UMG, shares of the SPAC dropped 18%. Despite heavy praise of the acquisition from Ackman, including an ultra-optimistic assessment of the broader music industry and its assets, PTSH investors appeared lukewarm on the deal for a variety of reasons.
That suggests that Ackman was seeking a convenient ‘out’ to appease investors. While SPAC deals are unconventional, it’s unclear whether the compliance issues raised by the SEC and NYSE were insurmountable.
Despite the surprising pullout, however, Ackman insisted that Pershing wasn’t leaving UMG ‘at the altar’ (using his words). Vivendi also indicated that there were no hard feelings, and agreed to allow the purchase of “investment funds with significant economic interests or management positions held by Mr. William Ackman.”
Accordingly, Ackman appears ready to purchase a UMG stake via his other investment vehicles. But the final stake could be lower than 10%.
“The equity interest eventually acquired in UMG will now be comprised between 5 and 10%,” Vivendi offered in a statement issued Monday. “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.”
More as this develops.