To date, the takeover of 10% of Universal Music Group by a US SPAC (Special Purpose Acquisition Company) of billionaire Bill Ackman seemed like a foregone conclusion.
Last month, June 20, NYSE-listed Pershing Square Tontine Holdings (PSTH) confirmed it would close the deal in a $ 4 billion transaction. It was supposed to close after UMG listed 60% of its shares in Amsterdam in September this year.
Today (July 19) there is some shock news: PSTH has canceled the purchase of 10% of UMG, citing “problems raised by the SEC with several elements of the proposed transaction – in particular whether the structure of our IBC is subject to NYSE rules” .
The deal is still in some form, however: PSTH has transferred the UMG share purchase agreement to Pershing Square Holdings Ltd – a Guernsey-registered investment company with net assets of over $ 9 billion at the end of 2020. Pershing Square Holdings is a separate company from Ackmans SPAC.
Pershing Square Holdings is an investment holding that is structured as a closed-end fund and typically invests in North American-based assets.
Its investments are made by Ackmans Pershing Square Capital Management, LP. managed
Below is the full letter to PSTH shareholders regarding the cancellation of the Universal deal issued today (July 19th):
Dear PSTH shareholder,
Yesterday our Board of Directors unanimously decided not to proceed with the Universal Music Group transaction and to redeem 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 take on the Vivendi compensation agreement and our UMG transaction costs.
In view of these developments, PSTH is withdrawing its redemption offer and the associated warrant exchange offer.
Our decision to pursue an alternate initial business combination (“IBC”) was driven by questions raised by the SEC with several elements of the proposed transaction – specifically, whether our IBC was structured in accordance with NYSE rules.
We and our attorney had several interviews with the SEC to change their position on the issues they identified. Ultimately, our board of directors concluded that it is in the best interests of shareholders to transfer the UMG share purchase agreement to Pershing Square (which is expressly allowed under the terms of the agreement with Vivendi) as PSTH did not believe the TH transaction in light the position of the SEC. The management and board believe that greater shareholder value can be created by quickly looking for a new merger partner.
PSTH still has 18 months to finalize a new transaction, unless it is extended by the vote of our shareholders. Given our recent experience, our next business combination will be structured as a conventional SPAC combination.
Although we are disappointed with this result, we continue to believe that PSTH’s unique size and affordable structure will enable us to find a transaction that meets our standards of business quality, sustainable growth and a fair price. We are highly economical and reputation motivated to complete a successful transaction. However, we will only get one deal that meets our high standards.
Our share price has fallen 18% since the transaction was announced on June 4th. While we believe that our shareholders recognize UMG’s exceptional qualities, including its attractive growth traits, business quality and outstanding management team, we have underestimated the reaction of some of our shareholders to the complexity and structure of the transaction. We also underestimated the potential impact of the transaction on investors who cannot hold overseas securities, margins their shares, or have call options on our shares.
While management and the board of directors clearly understood that the intricacies of our transaction structure could affect its attractiveness in the short term, we were of the opinion that, in the medium to long term, the sum of the parts created in the transaction would have resulted in significant shareholder value, namely: (1) UMG, (2) PSTH RemainCo and (3) Warrants on Pershing Square SPARC Holdings, Ltd. In addition, we expected that the structural problems of the transaction would be largely resolved by the end of this year.
While PSTH shareholders will not receive any UMG shares, UMG will become a public company with its listing on Euronext Amsterdam in September.
None of us expected this result. Despite PSTH’s inability to complete the UMG transaction, our counterparty was not left on the altar. Pershing Square will honor PSTH’s commitment to Vivendi. Pershing Square intends to be a long term UMG shareholder and will endeavor to work with UMG management to add value to all stakeholders.
We are devoting all of our resources to identifying and executing a new transaction for the benefit of PSTH shareholders. We remain very grateful for your patience and support.
With best regards,
William A. AckmanMusic business worldwide