Up until today, the acquisition of 10 percent of Universal Music Group by a US-based special-purpose acquisition company (SPAC) run by billionaire Bill Ackman looked like a foregone conclusion. Last month, on June 20th, NYSE-listed Pershing Square Tontine Holdings (PSTH) confirmed that it would be making the deal in a $4 billion transaction. It was set to be completed after UMG listed 60 percent of its shares in Amsterdam this September.
However, today (July 19th), some shock news: PSTH has pulled out of buying 10 percent of Universal, citing “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.”
The deal will still go through in some form, however: PSTH has transferred the UMG share purchase agreement to Pershing Square Holdings Ltd — a Guernsey-registered investment company that had over $9 billion in net assets at the close of 2020. Pershing Square Holdings is a separate company to Ackman’s SPAC. It is an investment holding company structured as a closed-ended fund that typically invests in North America-domiciled assets, and its investments are managed by Ackman’s Pershing Square Capital Management, L.P.
Below is the full letter written to PSTH shareholders regarding the cancellation of the Universal deal, issued earlier today:
Dear PSTH Shareholder,
Yesterday, our board of directors unanimously determined not to proceed with the Universal Music Group transaction, and to assign our share purchase agreement to Pershing Square Holdings, Ltd. (LN:PSH) (LN:PSHD) (NA:PSH) and affiliates (“PSH and affiliates” or “Pershing Square”). Pershing Square has also agreed to assume the Vivendi indemnity agreement and our UMG transaction costs.
In light of these developments, PSTH is withdrawing its Redemption Tender Offer and related Warrant Exchange Offer.
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.
We and our counsel had multiple discussions with the SEC attempting to change its position on the issues that it had identified. Ultimately, our board concluded that it was in the best interest of shareholders to assign the UMG stock purchase agreement to Pershing Square (which is specifically permitted under the terms of the agreement with Vivendi) as it did not believe PSTH would be able to consummate the transaction in light of the SEC’s position. Management and the board believe that greater shareholder value can be created by working expeditiously to identify a new merger partner.
PSTH has 18 months remaining to close a new transaction unless extended by the vote of our shareholders. In light of our recent experience, our next business combination will be structured as a conventional SPAC merger.
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. We are highly economically and reputationally motivated to consummate a successful transaction. We will, however, only complete a deal that meets our high standards.
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.
While management and the board clearly understood that the intricacies of our transaction structure could affect its attractiveness in the short term, we believed that substantial shareholder value would have emerged over the intermediate to long term from the sum of the parts that were created in the transaction, namely: (1) UMG, (2) PSTH RemainCo, and (3) warrants on Pershing Square SPARC Holdings, Ltd. Furthermore, we expected that the transaction’s structural issues would largely be resolved by the end of this year.
While PSTH shareholders will not receive UMG stock, UMG will become a public company when it is listed on Euronext Amsterdam in September.
None of us anticipated this outcome. Yet, despite the inability of PSTH to consummate the UMG transaction, our counterparty was not left at the altar. Pershing Square will be fulfilling PSTH’s commitment to Vivendi. Pershing Square intends to be a long-term UMG shareholder, and will endeavor to work with UMG management to help create value for all stakeholders.
We are devoting our full resources to identifying and consummating a new transaction for the benefit of PSTH shareholders. We remain extremely grateful for your patience and support.
William A. Ackman
This article originally appeared on Music Business Worldwide.