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Bill Ackman forced to abandon Universal Music SPAC deal by SEC

·2-min read
Taylor Swift is just one of the artists on UMG's roster. Photo: Caitlin Ochs/Reuters
Taylor Swift is just one of the artists on UMG's roster. Photo: Caitlin Ochs/Reuters

Bill Ackman has been forced to change course on a deal that would have seen his company, Pershing Square Tontine Holdings (PSTH), a special purpose acquisition company (SPAC), take a 10% stake in Universal Music Group (UMG), a share worth approximately $4bn (£2.9bn).

The agreement was blocked by the US's Securities and Exchange Commission (SEC) due to the fact that buying 10% of a company through a SPAC does not constitute a proper SPAC deal.

A release sent to PSTH shareholders said: "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.

"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."

The company said that it had had multiple discussions with the SEC attempting to change its mind but that it will look for a new merger partner instead.

"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," it continued.

The agreement was with UMG's majority owner, French media conglomerate Vivendi, which is set to complete a listing of UMG on the Euronext Amsterdam. Shares representing 10% of the music heavyweight would have been distributed to Pershing shareholders.

At the time of the initial announcement, in a filing to its investors, PSTH said UMG, which represents artists such as Taylor Swift and Lady Gaga, presents a number of competitive advantages and strategic attributes.

These include an iconic world-class management team, global consumer adoption of streaming and the growth associated with that market, and a significant fixed‐cost expense base allowing for long‐term margin expansion, it said.

Tontine became the biggest ever SPAC when it raised $4bn in an initial public offering (IPO) last summer, with Ackman's hedge fund Pershing Square committing a minimum of an additional $1bn.

Read more: What are SPACs? The hottest trend in investment explained

It did so to take a company public. Yet Universal is already in the process of being listed in Amsterdam by its French parent Vivendi, and it will not rely on Tontine to go public, as most companies do in their SPAC deals.

Vivendi's listing on the Euronext will see 60% of the company floated on the exchange, and will complete by 27 September at the latest.

Watch: What are SPACs?