Last month, Vivendi agreed to sell 10% of Universal Music Group to a ‘special purpose acquisition company’ [Spac] called Pershing Square Tontine Holdings [PSTH], with the deal expected to close by 15 September. Now there’s a snag. A big one.
“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,” explained a letter to shareholders. “Pershing Square has also agreed to assume the Vivendi indemnity agreement and our UMG transaction costs.”
So, the deal isn’t dead, as such: it’s being shifted to another part of the Pershing Square corporate family. “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.”
What’s going on here? According to the announcement, there were issues with US financial regulator the SEC: the PSTH board “did not believe PSTH would be able to consummate the transaction in light of the SEC’s position” and decided to look for another business that it can merge with in a traditional Spac deal – the kind that it initially hoped would be possible with UMG.
However, this isn’t just about the regulator. PSTH noted that its share price had fallen by 18% since announcing the plans on 4 June. “We underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure,” it admitted. “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.”
Where does this leave UMG? It will still go public in September on the Euronext Amsterdam exchange, as things stand. But having a deal that valued the major label at $41.52bn fall through, not to mention the prospect raised last week by the UK’s music streaming economics inquiry of a potential competition investigation into the three majors, makes the waters that little bit choppier as UMG sails towards its public listing.
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