What’s occurred?
One among Common Music Group’s greatest shareholders has out of the blue change into a a lot greater deal on this planet of excessive finance.
Pershing Sq. Capital Administration (PSCM), run by founder and CEO Invoice Ackman, has bought a 10% stake to a group of funding corporations for $1.05 billion, giving it an implied valuation of $10.5 billion.
The patrons are a consortium that features Bermuda-headquartered insurance coverage agency Arch Capital Group, Brazilian financial institution BTG Pactual, San Francisco-based ICONIQ Funding Administration, and Israeli insurance coverage agency Menora Mivtachim.
Ackman now plans to take NYC-based PSCM public someday within the subsequent two years, boosted by that new $10 billion-plus valuation, in keeping with a number of stories within the monetary press.
This story, after all, has a key connection to the music enterprise.
PSCM is the unique funding supervisor for Pershing Sq. Holdings (PSH) – a closed-end fund that owns a major minority stake in Common Music Group.
In accordance with UMG’s annual report for 2023, Pershing Sq. Holdings (alongside its associates, additionally managed by PSCM/Ackman) owns a 10.25% stake in Common.
Pershing Sq. paid round USD $4 billion for this UMG stake (over two transactions) in 2021.
Certainly, Pershing Sq. is the third-largest shareholder in UMG in the present day, behind Concerto Companions (a consortium led by Chinese language tech big Tencent, with 19.92% of UMG) and French billionaire businessman and former Vivendi president Vincent Bolloré, with an 18.01% stake.
Pershing Sq. Holdings’ UMG stake is an important a part of the fund’s portfolio, amounting to 24.9% of its internet property, in keeping with PSH’s newest annual report (see beneath).
Ackman, who’s believed to personal almost half of PSCM, has seen his personal fortune rise by round $4 billion within the wake of the 10% stake sell-off, in keeping with an estimate from the Monetary Occasions.
How Might all of this have an effect on UMG?
From a music business perspective, essentially the most attention-grabbing factor about Ackman’s 10% stake sale in his funding administration agency isn’t how wealthy he’s gotten: it’s what he plans to do with a superb chunk of the cash.
In accordance with the Wall Avenue Journal, round half of the $1.05 billion that Pershing Sq. Capital Administration raised within the new stake sale will probably be invested in a brand new funding fund, Pershing Sq. USA.
Ackman’s ambitions for Pershing Sq. USA, which might launch as quickly as subsequent month, are huge: In accordance with Bloomberg, Ackman is aiming to lift $25 billion for the brand new US fund.
That whopping increase might partly come from an IPO: Ackman and his workforce have already filed plans with the SEC to listing Pershing Sq. USA on the New York Inventory Alternate.
A prospectus filed with the SEC states that Pershing Sq. “believes that the [USA] Fund has the potential to be one of many largest, if not the biggest, listed closed-end funds”.
PSCM will clearly be the unique funding supervisor for Pershing Sq. USA, simply as it’s for Pershing Sq. Holdings.
On the finish of Might, Pershing Sq. Holdings’ whole Belongings Beneath Administration (AUM), together with associates, stood at USD $19.01 billion.
So, if Ackman executes his $25 billion plan for Pershing Sq. USA, Pershing Sq. (as in, Ackman’s funding administration firm) might quickly have some $44 billion in property below administration by way of closed-end funds in Europe (Pershing Sq. Holdings) and North America (Pershing Sq. USA).
And what do you assume Ackman will probably be eager to spend his new $25 billion on?
Effectively, he positive loves the music enterprise. And he positive loves Common.
As an investor in Common Music Group, Ackman has been a vocal advocate for the corporate’s technique.
In a word to Pershing Sq. Holdings traders final 12 months, he argued that UMG has been doing all the best issues to capitalize on the event of AI, whereas working to attenuate the know-how’s potential to break the music enterprise.
“Given UMG’s continued sturdy market positioning and lengthy runway for sustained earnings progress, we consider that the corporate’s present valuation represents a reduction to its intrinsic worth,” Ackman wrote.
Pershing Sq.’s newest annual report describes UMG as a “capital-light enterprise that may be finest regarded as a quickly rising royalty on higher world consumption and monetization of music.”
“music is without doubt one of the lowest-cost, highest-value types of leisure, which remains to be within the early phases of monetization.”
Pershing Sq.’s newest annual report
The report additionally particulars Ackman’s pleasure for UMG over the potential for repeated music streaming value rises within the 12 months forward, noting: “[M]usic is without doubt one of the lowest-cost, highest-value types of leisure, which remains to be within the early phases of monetization.”
Ackman additionally heaps particular person reward on UMG chief Sir Lucian Grainge: Pershing Sq.’s annual report calls Grainge somebody who “has navigated each music format and technological risk to the business with aplomb and might solely be described as an icon”.
Importantly, Ackman’s technique, with UMG at its coronary heart, is paying off: Pershing Sq. Holdings recorded 26.7% progress in NAV (Web Asset Worth) in 2023.
(Alongside UMG, Pershing Sq. Holdings presently holds positions in Hilton Worldwide, Restaurant Manufacturers Worldwide – proprietor of the Burger King, Popeyes and Tim Hortons chains – and, since 2023, Google mum or dad Alphabet.)
So, Might Invoice Ackman quickly spend a few of Pershing Sq. USA’s potential $25 billion capital on an extra stake in UMG?
Probably, although clearly that’s simply hypothesis.
In case you observe the logic, one potential institutional vendor of UMG inventory is the French media empire (and former UMG proprietor) Vivendi, which continues to carry a 9.98% stake in UMG.
(Vivendi, keep in mind, bought Invoice Ackman the 10% of UMG that Pershing Sq. Holdings presently owns, agreed forward of UMG’s Euronext itemizing in 2021.)
If the value is correct, Vivendi’s stake in UMG (~10%) and Vincent Bolloré’s stake in UMG (~18%) would possibly even come as a pair: by way of his Groupe Bolloré, Vincent Bolloré owns round 30% of Vivendi in the present day.
However what if Ackman finds himself unable to purchase a stake in UMG of ample dimension?
Maybe he’ll look elsewhere throughout the music enterprise for a possibility — making a considerable funding in a digital service like Spotify, for example, or a fellow music rightsholder like Warner Music Group.
Ackman has beforehand famous that WMG and UMG share optimistic development traces for traders. In 2021, he acknowledged, “We consider that traders have simply begun to understand the change in business dynamics, and consequently, haven’t but given correct recognition to the worth of WMG or UMG.”
Nevertheless, Ackman additionally made clear that, in his view, UMG was the extra enticing inventory for Pershing Sq. Holdings traders.
Are there any downsides for UMG to Pershing Sq.’s new setup?
This story is a bit of knotty, however keep in mind – if the monetary press is to be believed – two new public listings are doubtlessly coming to Pershing Sq..
The primary is for Pershing Sq. USA (PSUSA), which, as we’ve coated, might launch as early as this summer season with $500 million-ish of ‘startup capital’.
That ‘startup capital’ will come from the $1.05 billion that Pershing Sq. Capital Administration (PSCM) simply raised by way of the sale of a 10% stake in its firm, forward of PSUSA’s deliberate flotation on the New York Inventory Alternate.
Nevertheless, PSCM itself, with a brand new $10.5 billion valuation within the bag, is additionally contemplating an IPO.
In accordance with monetary media stories, Ackman is contemplating a list for his funding administration firm within the subsequent two years, although at earliest in late 2025.
One wonders how a lot of his funding administration firm Ackman — who, keep in mind, presently owns round half of PSCM — could be keen to promote on the inventory market.
If it’s a majority-stake, or one which invitations in (sarcastically sufficient) activist traders, it might spell challenges for Ackman’s headstrong funding technique – together with his seemingly unshakeable perception within the worth of premium music rights.
Logically, nevertheless, it’s laborious to see Ackman frittering away energy at his funding administration agency in such a fashion.
He’ll wish to preserve management, and he hardly wants the cash: in keeping with Forbes, Ackman’s private fortune is presently value round $9.2 billion.
A closing thought…
In latest months, Invoice Ackman has change into a outstanding political commentator on X/Twitter.
Specifically, he’s been a fierce critic of what he and others say is an explosion of antisemitic sentiment in US politics because the Oct. 7 assault by Hamas on Israel, during which greater than 1,100 individuals have been killed.
An alumnus of Harvard Enterprise College, Ackman is taken into account by many to have been instrumental in forcing the resignation of Claudine Homosexual as president of Harvard College, after she made an look in entrance of Congress final fall during which she skirted round questions on whether or not calling for the genocide of Jews violated Harvard’s code of conduct.
Although controversial, Ackman’s posts on X about Harvard’s president – plus his basic opposition to company variety, fairness and inclusion (DEI) insurance policies and his help for Israel – have brought on his following on the social media platform to mushroom.
Eventually rely, Ackman was adopted by greater than 1.2 million individuals on Elon Musk’s social media platform.
All of this would possibly appear to be dangerous habits for a hedge fund supervisor (particularly one invested in a music firm that works with celebrity artists who’ve proven public sympathy for Palestine).
But plainly, a minimum of to some extent, Ackman’s newly developed social media profile may very well be forming a part of his enterprise technique.
As Reuters put it earlier this week: “The billionaire hedge fund supervisor has parlayed his newfound social media clout right into a wealthy valuation for the Pershing Sq. Capital Administration agency he began.”
It’s an analogous story for Pershing Sq. USA (PSUSA), the brand new fund Ackman is making an attempt to launch with $25 billion within the financial institution.
In PSUSA’s latest submitting with the SEC, the soon-to-be fund pitches that it is going to be capable of increase “important liquidity supported by its scale, title recognition and [Ackman’s] broad following“.
It provides that it expects Ackman and Pershing Sq.’s “brand-name profile and broad retail following will drive substantial investor curiosity and liquidity within the secondary market”.
In on a regular basis, non-finance converse, “retail following” means one thing a lot less complicated: Bizarre people.
The sort who would possibly heat to an outspoken funding supervisor on social media – earlier than throwing a few of their hard-earned paycheck straight into his new fund.Music Enterprise Worldwide
