Activist investor Bill Ackman has his sights set on Universal Music Group, and he’s launched a complex $64 billion proposal for the label behind Bad Bunny, Taylor Swift, Paul McCartney, and a long list of other superstars.
To get his hands on the prize though, Ackman will first have to contend with another big personality: Vincent Bolloré, the 74-year-old secretive French billionaire who controls 28% of Universal through a complex web of holdings.
“Nine times out of 10 when people are speculating about what Bolloré will do, they get it wrong,” said Nicolas Marmurek, a London-based analyst who specializes in M&A.
That makes winning over the unpredictable Bolloré mission critical for Ackman.
“Without Bolloré, we don’t have a transaction,” Ackman told investors on April 7 when he unveiled the details of his proposal. Ackman said his “first phone call” the day before announcing the deal, was to Bolloré Group, and he reportedly spoke with current chairman and CEO Cyrille Bolloré, Vincent Bolloré’s 40-year-old son. Ackman said he gave the younger Bolloré a “high-level summary of the transaction.”
“And I guess the words I got back were, ‘These are music to my ears,’” Ackman said. “They are, I would say, intrigued,” he added later. “But of course, the devil’s in the details.”
Ackman’s proposed deal is structured as a merger between UMG and a Pershing Square special purpose acquisition rights company. Pershing Square’s cash commitment is €2.5 billion, and a combination of new debt, cash on UMG’s balance sheet, and asset sales will be used to finance the rest of the transaction. But the deal is highly complex and could end up being consummated in several different ways depending on whether UMG shareholders elect to swap their shares for cash or stock in the new entity, or a combination.
Universal’s board confirmed the proposal the same day as Ackman’s unveiling, describing it as “unsolicited and nonbinding.” The UMG board said directors would review it “in accordance with fiduciary duties” and said it had “complete confidence in UMG’s strategy and the leadership of Sir Lucian Grainge.” Grainge has been CEO since 2011, when he led UMG’s acquisition of EMI’s recorded-music catalog.
Ackman also pitched refreshing UMG’s board with two new members and naming Hollywood giant and Creative Artists Agency cofounder Michael Ovitz as chair. Ovitz has been friends with UMG CEO Grainge for four decades, Ackman has told investors (Ackman also noted that he’s been friends with Ovitz for 31 years).
The new structure would generate about $3 billion in incremental cash for Bolloré Group, and the family would retain its UMG stake. According to Ackman, the deal also addresses what he said is part of the reason behind UMG’s recent 39% stock drop from its peak two years ago: The market was uncertain about what the Bolloré family was planning to do with their stake.
“A very important catalyst was Cyrille Bolloré, the representative from Bolloré Group, surprised the market by resigning from the Universal board,” Ackman told investors in a call this month. “That sort of put in question their intentions with respect to whether they were going to hold their stake.”
While much of Ackman’s proposal makes plenty of sense—listing UMG in the U.S., getting passive investment from index fund holders, opening the stock up to investors who can only invest in U.S.-listed entities, no one can predict how Vincent Bolloré will respond, said Marmurek, the M&A analyst. Bolloré is one of the savviest and most secretive investors in France, and trying to gauge how he’ll react is pure speculation, Marmurek said.
“He’s building a legacy and built a crazy amount of wealth over the space of one generation—he wants that wealth protected,” he said. “Trying to second guess Bolloré is very dangerous.”
And given Bollore’s track record, many observers expect him to drive a hard bargain.
“I struggle to see why Bolloré would jump at the offer without getting something else from Bill Ackman himself,” said Marmurek. “In my view, Bolloré will want something more. I’m not saying the deal is not going to happen, but it’s a very uncertain deal at this point.”
Negotiations could center around one particular aspect of the complex deal that allows certain shareholders to receive an all-cash payment at a lower valuation.
According to Le Monde, the deal calls for Pershing Square to spend about €2.5 billion on the €9 billion cash portion of the deal, but there’s an all-cash route specifically with Bolloré in mind that includes up to €7.5 billion at €22 per UMG share. That means Bolloré would have to accept a discount in exchange for liquidity, which is a lever he might like to pull, analysts said.
A potential counteroffer by UMG and its shareholders, including Bolloré, could include a larger cash component, a research note from Paris-based financial services firm Oddo BHF states. “A consortium could form and propose a higher cash component (50%?) and an equivalent structure with a listing in the U.S.,” wrote analyst Jérôme Bodin.
At this point, however, “the market considers it unlikely that the current offer will go through and that Bolloré will accept it,” Bodin’s note states. He described the deal as a “massive share buyback financed by UMG’s balance sheet, combined with a relocation of the primary listing to the U.S.”
The big question is whether Bolloré, who has spent his career building an empire, is ready to relinquish some of his control over a prized asset—and if Ackman’s entreaties convince him that it’s time to cash out or simply persuade Bolloré to pursue Ackman’s vision for UMG himself.
Desmond Kingsford, whose Highwood Value Partners owns shares in Bolloré and Compagnie de l’Odet, questioned why Bolloré would support Ackman’s proposal “when he could push management to do everything Ackman proposes and not dilute any control or ownership?”
“Surely he could sell a few shares at a higher price after management takes those actions if he liked the liquidity aspect of the deal, perhaps in a relisting,” wrote Kingsford in an email.
