Ackman SPAC falls flat with Universal denouement

LONDON, June 4 (Reuters Breakingviews) - Eagerly anticipated albums are often disappointing. Guns N’ Roses kept fans waiting 15 years for 2008’s “Chinese Democracy”, a patchy record at best. Billionaire Bill Ackman can expect a similarly flat reception to his blank-cheque firm announcing it is in talks to buy 10% of Universal Music for $4 billion.

To be fair, Ackman seems to have secured a fair price for investors in his special purpose acquisition company, Pershing Square Tontine Holdings (PSTH.N), some of whom call themselves Tontards on social media. The implied enterprise value of 35 billion euros ($42 billion) is 21 times the EBITDA that Bernstein analysts reckon Universal will generate this year, compared with rival Warner Music’s (WMG.O) 20 times. The world’s biggest label, home to Drake and Taylor Swift, probably merits the premium given its superior profitability and growth.

But in other ways Ackman’s acolytes have a right to be disappointed. Universal was going public anyway. French parent Vivendi (VIV.PA), a media conglomerate controlled by Gallic tycoon Vincent Bolloré, is spinning off 60% to shareholders through an Amsterdam listing. Ackman is merely allowing them to get in slightly early at a price close to fair value. Compare that with other thwarted targets like financial-info empire Bloomberg, a competitor of Breakingviews parent Thomson Reuters (TRI.TO), or $90 billion home-sharing app Airbnb (ABNB.O).

Tontards could arguably get exposure to Universal at an even better price simply by buying shares in its parent. Vivendi’s businesses excluding its equity stake in the music label are worth almost 8 euros per share after deducting net debt and other liabilities, based on Breakingviews calculations using Bernstein valuations. That leaves 21 euros per share for its 80% Universal stake, implying an equity value for the whole thing of 29 billion euros. Instead, Ackman’s deal implies an equity value of 33 billion euros, 11% more. Investing through Vivendi rather than the SPAC would also allow Tontards to avoid fees.

Another quirk is Ackman’s SPAC retaining $1.5 billion of capital for a future deal. While that leaves room for another new release, the vehicle’s shares fell by nearly 6% to $23.50 in after-market trading on Thursday, after reports of the Universal deal. It’s not exactly the rock ’n’ roll finale investors were hoping for.

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CONTEXT NEWS

- Bill Ackman’s special purpose acquisition company, Pershing Square Tontine Holdings (PSTH), said on June 4 that it was in discussions with Vivendi to acquire 10% of Universal Music for about $4 billion.

- The deal represents an enterprise value of 35 billion euros for Universal. Unlike most SPAC business combinations, PSTH and Universal will not combine into one company. Instead, Universal will complete its previously announced listing on Euronext Amsterdam in the third quarter. After that, PSTH will distribute Universal shares directly to PSTH shareholders.

- Current PSTH shareholders will subsequently own three separately traded securities: ordinary shares in Universal valued at $14.75 a share before accounting for warrants; a security worth $5.25 a share representing the remaining PSTH resources; and so-called Special Purpose Acquisition Rights (SPARs), giving them the right to acquire common stock in Pershing Square’s so-called Special Purpose Acquisition Rights Company (SPARC) for $20 a share.

- The latter can only be exercised after SPARC strikes a definitive agreement on a new deal. SPARC is expected to have $10.6 billion for a combination.

- Pershing Square Tontine Holding’s shares were down nearly 6% at $23.50 in after-market trade on June 3, close to its initial public offering price of $20, after reports of the potential deal.

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