Billionaire investor Bill Ackman announced early Monday that he has decided not to use his SPAC to acquire a 10% stake in Universal Music Group after the Securities and Exchange Commission voiced concerns about the the complicated agreement, which would have been the biggest SPAC transaction to date. However, Ackman plans to use his hedge fund to buy the stake directly instead; Vivendi confirmed in an announcement that “The equity interest eventually acquired in UMG will now be comprised between 5 and 10%,” adding that if less than 10%, it will sell the shortfall to other investors.
Earlier this year, Ackman’s special purpose acquisition company, Pershing Capital, unveiled plans to acquire the world’s largest music company, which was valued at more than $40 billion. Pershing Square also owns stakes in Chipotle, Domino’s Pizza, the Lowe’s home improvement chain and Hilton Hotels but had not previously held any other media or entertainment properties.
In a letter to investors cited by the New York Times and other outlets, Ackman said Pershing had failed to change the agency’s mind about the multilayered deal. Investors in the SPAC, which is called Pershing Capital Tontine Holdings, seemed to lack confidence in the deal: Its shares had dropped in value by nearly 20% since the deal was announced early in June.
“We underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure,” Ackman wrote.
The terms of the arrangement called for the SPAC to invest $4 billion for 10 percent of UMG, which parent company Vivendi had previously announced would be spun off as a standalone entity to trade on Euronext after Vivendi distributes 60% of UMG to its shareholders by September. Additionally, China’s Tencent acquired 20% of UMG, leaving 20% to Vivendi, to which it was considering selling half, as reported by Variety on May 18.
Pershing Square Tontine now has 18 months to find and close a new deal, unless shareholders give it more time, and “our next business combination will be structured as a conventional SPAC merger,” Ackman said.