What Is UMG’s Real Value? Investors & Music Execs Weigh in on Pershing Square Bid

While some headlines say Pershing Square’s offer to buy the Universal Music Group (UMG) values the company at $64 billion — which would make it by far the biggest music industry deal ever — if you get into the details of the offer, it looks like Pershing Square’s founder and CEO, Bill Ackman, is trying to buy the major on the cheap. At least that’s the assessment of some Wall Street music investors and music industry executives.

For one thing, despite all the headlines touting the more than $60 billion valuation of the convoluted offering, the cash option, if it were available for all shares — which it is not — wouldn’t even be bigger than UMG’s initial public offering.

Pershing Square’s valuation is based on its forward-looking view that UMG’s stock price will have a projected value of 30.40 euros ($35) per share on Dec. 31, 2026, which would give the deal a valuation of 55.55 billion euros ($64 billion). However, if you read Pershing Square’s letter to the UMG board, it says UMG shareholders may elect to receive all cash or a mix of stock and cash consideration. If shareholders choose to receive all cash, they will receive 22 euros a share, which would give the deal an overall value of 40.34 billion euros ($43 billion).

In short, $43 billion would put the deal below UMG’s valuation after its first day of trading, when it closed at 25.10 euros, giving it a 46 billion euros valuation — then about $54 billion. But even the $43 billion valuation is a pie-in-the-sky figure, because Pershing Square is only proposing to bring 9.4 billion euros ($10.85 billion) to the table to pay for its deal by injecting 2.5 billion euros ($2.89 billion) in cash, raising 5.4 billion euros ($6.23 billion) in debt and getting another 1.5 billion euros ($1.73 billion) toward the financing by selling UMG’s Spotify holdings.

The non-binding offer will pay shareholders 5.05 euros ($5.82) a share and the equivalent of a 0.77 share in new UMG stock, which would see the share count fall by 17%, from 1.833 billion to 1.541 billion shares.

If you add in the $2.5 billion that Ackman still has in UMG stock — he paid $4 billion in 2021 for about 10% of UMG and, in 2025, sold about $1.5 billion of that, leaving him with a 6.2% stake in the company — that means he’s trying to take control of UMG for a total of about $12 billion, not $64 billion. In addition, he’s only bringing $5.5 billion of Pershing Square’s own money to the table. If shareholders agree to the Pershing Square proposal, at the end of the deal, Pershing will own an 11.7% stake in UMG shares, according to a Billboard transcript of a Pershing Square conference call with Wall Street analysts.

What Ackman is really trying to do, say music industry financial executives, is take over UMG on the cheap — or at the very least, ignite UMG share price increases.

As one music industry financial investor puts it, “Ackman is saying, ‘Trust me, I’m the man. I’ll put a great board in; we will get listed in the U.S., and we will get rid of the guys in Europe, and off we go.’ That executive describes the Pershing Square offer as a “non-transaction transaction. Is he really buying the company or is he saying, ‘Put me in charge and the company will do better’?”

A music industry financial executive similarly says, “While the offer is impressive on its face, it’s financially structured with very little cash, new debt and a very large equity component in a new UMG structure. Shareholders are not getting a premium in cash; they are taking a bet on the valuation that Pershing Square says it can get in the future.”

Pershing Square is betting that all current shareholders will choose to take the equivalent of 77% of their shares and 5.05 euros, instead of cashing out and choosing to take 22 euros a share. However, if shareholders do choose to take the all-cash payout, the math doesn’t work. As the Barclays Bank European Media Equity research analyst team puts it, “There is in effect no cash alternative.”

If, as Pershing Square expects, existing shareholders choose to take the equivalent of 77% of a share for each share outstanding and 5.05 euros, the cash component works out to 9.3 billion euros, which the money on the table would just about cover. Alternatively, the 9.4 billion euros cash offer on the table will only allow shareholders to buy, at 22 euros a share, 444.3 million shares — or just 23.3% of outstanding shares.

It’s unlikely that all shareholders will choose to take all cash, and it’s equally unlikely that all of them will choose to instead take the 0.77 a share trade-in deal plus 5.05 euros a share — meaning it will probably be a combination of both. But as Barclays’ European Media team puts it, either way, “The number of shareholders that can get €22.00 per share or 100% cash would be very small.”

Others wonder if the offer is even real. “Isn’t he just trying to stimulate share price? He is doing what activist investors do,” says a senior music industry executive.

If that was Pershing Square’s main intention, Ackman is off to a good start, as UMG’s stock closed at 19.06 euros on Tuesday (April 7) — up nearly 11.5% from the April 2 close of 17.10 euros. According to the music industry financial executive, Ackman’s offer served as a huge advertisement that UMG’s stock is undervalued, and “he just got at least 10% richer.”

Ackman has previously said he believes UMG shares are undervalued and do not reflect the company’s performance, a point he extensively reiterated on Tuesday’s conference call. He is not alone in that assessment, as others have noted that UMG has been producing strong results but has not been rewarded when it comes to its share price — something that UMG management agrees with. Just last week, in an apparent bid to boost the share price, UMG announced it would buy back about 500 million euros ($574 million) worth of its shares. In a statement at the time, UMG CFO Matt Ellis said, “We currently see a meaningful dislocation in UMG’s market valuation.”

But that effort isn’t enough for Pershing Square. During the conference call, Pershing executives laid out that while UMG’s performance has been strong, UMG management hasn’t paid enough attention to the share price. In particular, Ackman cited the company’s ownership of about $2.7 billion in Spotify shares and said the market is giving UMG no credit for that stake.

“There’s been no presentation by the company of what the plans are for that holding. In general, we hear from shareholders that they just find the business hard to understand, difficulty getting their questions answered,” Ackman said during the conference call, according to the Billboard transcript. “They’re surprised almost every quarter with puts and takes in the earnings. And really this relates to how investor relations have been handled by the company.”

Later in the call, according to the Billboard transcript, Pershing Square Capital Management chief investment officer Ryan Israel said, “We think that we can add a lot of value [by helping] capital allocation and shareholder communications. And we think the combination of those two things can be very powerful to allow for very significant earnings per share growth over time.”

During the call, Pershing Square outlined where it believes it can deliver value to shareholders. But some worry that despite having a five-year history of UMG ownership, Pershing Square’s understanding of the music business still falls short.

The music industry financial executive says there are always “serious concerns about how a financially structured transaction” will impact investment in artists and songwriters. “Many CFOs of the larger financial institutions have shown they are not concerned about investments” in A&R when it comes to getting cost savings to raise a stock price valuation, the executive adds.

But Pershing Square’s Israel addressed that concern during the conference call, saying, “We agree with management that the first priority of the free cash flow of the business is investments and acquisitions that further improve the competitive position of the company.”

Industry insiders are nevertheless skeptical that that will remain the case. As another senior music industry executive puts it, “Did you listen to the conference call? It was like the greatest hits of someone who knows just enough to be dangerous.”