Bill Ackman told investors on Tuesday (April 7) that he expects “overwhelming shareholder support” for Pershing Square‘s $64 billion takeover proposal for Universal Music Group — revealing that his first call before launching the bid was to UMG‘s largest single shareholder, and that he and proposed board chairman Michael Ovitz dined with UMG Chairman and CEO Sir Lucian Grainge weeks before submitting the offer.
Speaking on an investor call following the announcement of a non-binding bid to acquire all outstanding shares of UMG, Ackman was candid about what it will take to close the deal — and how far along he believes the groundwork already is.
The transaction requires the support of UMG‘s board and a two-thirds vote of shareholders who attend a meeting called for the purpose.
“Without Bolloré, we don’t have a transaction.”
Bill Ackman
Ackman said his priority was the Bolloré Group, the company’s largest single shareholder, which controls 28% of UMG via both a direct stake in the music company, plus its holding in Vivendi.
“Without Bolloré, we don’t have a transaction,” Ackman said.
“So my first phone call yesterday was to [Bolloré] to just share with them a high-level summary of the transaction. And I guess the words I got back were, ‘these are music to my ears.’”
Ackman added that “the devil’s in the details” but described Bolloré as “intrigued.”
(Ackman noted that the conversation had been brief and that Pershing Square had deliberately not shared material non-public information with Bolloré ahead of the public announcement.)
The transaction would generate approximately €2.7 billion in incremental cash for the Bolloré Group, Ackman said, while allowing the French firm to retain its stake in UMG — addressing what he characterized as market anxiety about whether Bolloré intended to sell its position.
On Grainge, Ackman acknowledged: “We need board approval from Universal Music. We need the support, ultimately, I think, of Lucian [and] the management team.”
“We need the support, ultimately, I think, of Lucian and the UMG management team.”
Bill Ackman
He said that he and Ovitz — whom Pershing Square has proposed as Chairman of UMG‘s board of directors — had presented “the idea of this potential transaction without really getting into details about a specific proposal” at a dinner a couple of weeks ago.
“Lucian encouraged us to send it in and [said] it’s something the company’s going to take a hard look at,” Ackman said.
Why Ackman believes the deal ‘checks the box’ for all stakeholders
Asked by Michael Morris of Guggenheim about the path to approval given the concentration of UMG‘s shareholder base, Ackman once again expressed confidence.
“I don’t see a reason why all the shareholders won’t support this transaction,” he said, adding that the proposal “addresses really everyone’s concerns” and was “almost frictionless.”
Ackman said the deal would benefit UMG employees holding stock options that are “massively out of the money” due to the current depressed share price. He added that artists would receive approximately €750 million from the sale of UMG‘s €2.7 billion Spotify stake.
Ackman said that he did not expect opposition from Tencent — whose consortium holds approximately 20% of UMG — or “any of the other [major share] holders.”
Ackman was emphatic throughout the call that the proposal would not change how UMG is run.
“I don’t see a reason why all the shareholders won’t support this transaction.”
Bill Ackman
He praised Grainge and the Universal management team for having “done an excellent job” and said there would be “no change to the way the business operates.”
Pershing Square CIO Ryan Israel echoed the point when asked about UMG‘s revenue outlook: “We are very optimistic and excited [by] the success the company has had historically.”
Questioned by Christophe Cherblanc of Bernstein, Ackman praised UMG‘s M&A discipline, saying the management team had been “incredibly disciplined and thoughtful about which are the important enduring artists where it would be an enhancement to the company’s catalog for an acquisition to make sense.”
That said, Ackman disclosed that one of the conditions of the transaction would be a simplified “reset” of Sir Lucian Grainge‘s employment contract.
“My view is his contract is much too complicated,” Ackman said. “There’s an opportunity to restructure it in a way that makes sense.”
Ackman acknowledged that Grainge‘s contract likely contains a change-of-control provision, but said he did not believe there were any other significant employee-related change-of-control clauses that would be triggered by the deal.
Governance, investor relations, and the financial case
The proposed new board would include Michael Ovitz as Chairman, two representatives from Pershing Square, and additional members from UMG‘s current board.
Ackman described Ovitz, who co-founded Creative Artists Agency in 1975, as “considered by many to be the greatest agent of all time,” citing a 40-year relationship with Grainge.
Also present on the call was Jill Chapman, who Ackman said had recently joined Pershing Square from Hilton, where she was head of investor relations for over a decade and was apparently “the number one ranked investor relations person in the S&P 500” during that period.
Ackman positioned Chapman as central to the plan to overhaul UMG‘s investor communications — one of six factors Pershing Square has cited as depressing the stock — saying the company needed “a very proactive approach” to engaging with shareholders and analysts.
Ackman said UMG “has never graduated from being operated like a private company” in how it communicates with investors, and that the absence of per-share metrics in the company’s guidance was currently “a significant concern for the shareholder base.”
Pershing said it expects UMG to deliver earnings-per-share growth of 15% to 19% annually under the new plan, driven by high-single-digit revenue growth, margin expansion, and the cancellation of 17% of its shares outstanding.
“Hilton is a royalty on people staying in hotels. Much the same way that Universal‘s a royalty on people listening to music.”
Bill Ackman
Ackman said the company “can be a high teens earnings grower over the next foreseeable future, decade-plus.”
Ackman repeatedly compared UMG‘s potential to that of Hilton Worldwide, which Pershing Square held for over seven years before exiting the position earlier this year.
He noted that Hilton‘s stock traded at approximately 18 times earnings when Pershing first invested, and now trades at 33 times — “in the middle of a war” — crediting the transformation to transparent investor communications and disciplined capital allocation.
“Hilton is a royalty on people staying in hotels,” Ackman said. “Much the same way that Universal‘s a royalty on people listening to music.”Music Business Worldwide
On April 7, 2023, investor Bill Ackman informed stakeholders about his expectations for “overwhelming shareholder support” for Pershing Square’s ambitious $64 billion takeover bid for Universal Music Group (UMG). He revealed that prior to making the bid public, he contacted UMG’s largest shareholder, the Bolloré Group, which holds a 28% stake in UMG through its direct investment and its interest in Vivendi, the parent company. Ackman emphasized the importance of securing support from Bolloré for the transaction to proceed, stating, “Without Bolloré, we don’t have a transaction.” He noted that his initial conversation with Bolloré was positive, with the group expressing intrigue about the proposal.
Ackman stressed that the success of the takeover would hinge on obtaining both board approval from UMG and a two-thirds majority vote from shareholders during a special meeting. He acknowledged the need for backing from UMG’s Chairman and CEO, Sir Lucian Grainge, and the management team, indicating that he and Michael Ovitz, the proposed chairman of UMG’s board, previously dined with Grainge to discuss the potential deal. Grainge had encouraged them to formally submit their proposal, indicating that the company would consider it seriously.
Answering questions from investors, Ackman expressed confidence that all shareholders would support the transaction, citing that it would address various stakeholders’ concerns and would be a “frictionless” process. He highlighted that the deal would provide significant financial benefits, including €2.7 billion in additional cash for the Bolloré Group, while allowing them to retain their interest in UMG. Ackman also mentioned that UMG employees with stock options would benefit due to the current depressed share price, and artists would receive around €750 million from UMG’s stake in Spotify.
Ackman reassured investors that the management structure and operations of UMG would remain unchanged post-acquisition. He praised Grainge and his team for their track record, affirming that the company had been well-managed and that there would be no operational disruptions. Ackman acknowledged that UMG had been disciplined in its mergers and acquisitions strategy, focusing on enhancing its catalog with valuable artists.
However, he did propose a simplified restructuring of Grainge’s complex employment contract, suggesting it could be streamlined to better fit the company’s operations. Ackman clarified that while Grainge’s contract likely contains change-of-control clauses, he did not foresee significant issues arising from them.
Ackman discussed potential changes to UMG’s board structure post-acquisition, which would include Ovitz as chairman, two representatives from Pershing Square, and additional members from UMG’s existing board. He described Ovitz as highly respected in the industry due to his long-standing relationship with Grainge.
Additionally, Ackman highlighted the importance of improving UMG’s investor relations, a critical area he identified as needing attention. He mentioned Jill Chapman, a new addition to Pershing Square from Hilton, who is expected to spearhead UMG’s efforts in engaging proactively with shareholders and analysts. Ackman criticized UMG for operating similarly to a private company in its investor communications, particularly pointing out the lack of per-share metrics in its guidance, which he deemed concerning for shareholders.
He projected that UMG could achieve 15% to 19% earnings-per-share growth annually under Pershing Square’s proposed management plan. This growth would stem from high-single-digit revenue increases, improved profit margins, and a share buyback plan to reduce shares outstanding by 17%. Ackman drew parallels between UMG and Hilton Worldwide, where he had previously invested, emphasizing that UMG has the potential to be a high-return investment akin to a “royalty on people listening to music,” similar to Hilton’s model as a “royalty on people staying in hotels.”
In conclusion, Ackman’s presentation underscored his optimistic vision for UMG, combining strategic governance changes, enhanced investor relations, and a focus on operational excellence to drive shareholder value and growth in the music industry. He positioned the proposed acquisition as a transformative opportunity that would benefit all stakeholders involved.
