VIVHY Vivendi SE (PK)

By Anne Steele 

Hedge-fund billionaire William Ackman's deal for a stake in Universal Music Group wouldn't be his family's first brush with the music industry -- though it could be more lucrative.

His grandfather, Herman Ackman, wrote a song in 1926 that he sold for $150 on Tin Pan Alley, the old-time New York City hub of publishers who dominated pop music. "Put Your Arms Where They Belong (For They Belong to Me)" turned out to be a hit, with more than 750,000 copies sold.

Mr. Ackman opened his first meeting with Universal management with the tale, according to people involved in the deal.

Executives at the largest music company in the world connected the dots to find that Universal, through acquisitions over the past century of music-business consolidation, owns Mr. Ackman's grandfather's recordings. While the companies were going back and forth on the mechanics of the potential special-purpose acquisition company deal, Universal executives tracked down two 78s of the song and the sheet music, then mounted and framed them as a gift to Mr. Ackman, according to the people.

If the transaction goes through, the bid by Mr. Ackman's Pershing Square Tontine Holding Ltd for 10% of Universal Music Group would mark a new high point in the industry's resurgent growth, which has sparked interest from Wall Street investment and private-equity firms such as KKR & Co., to everyday investors like those who can buy shares in publicly traded music-investment company Hipgnosis Songs Fund Ltd.

Mr. Ackman's potential deal would value Universal Music Group at about $40 billion, and could be inked in the next few weeks, people familiar with the matter said. Universal parent Vivendi SE said Friday that the transaction is subject to a shareholder vote later this month to distribute 60% of Universal's shares and list the company in the Netherlands.

In a sign that some investors are disappointed -- or confused -- by Mr. Ackman's plans, Pershing Square Tontine shares fell 13% Friday to $21.68, though they are still trading above their $20 July IPO price.

SPACs, empty shells that raise money with the sole purpose of looking for a target to merge with and bring public, have exploded in popularity as companies seek alternatives to a traditional IPO.

Universal is the uncontested dominant player in the record business, commanding some 40% market share in the U.S. and 30% globally.

Market share is key in the streaming economy, especially as it accounts for more than 80% of recorded-music revenue in the U.S. and more than 60% globally. Spotify and other services pay out revenue from subscriptions and advertising based on market share.

Universal's artists are consistently topping the charts and among the top-streamed around the world. Nine of the top 10 recording artists of 2020 -- and slices of the tenth -- are on Universal's roster, according to the International Federation of the Phonographic Industry.

Over the past two years, artists, managers and music executives have seen a surge of financial players interested in music. They want to reap the benefits of a stable asset that has bucked economic downturns, including during the Covid-19 pandemic, and that promises to grow as the world comes online with streaming services like Spotify and Apple Music.

Vivendi held discussions with various private-equity firms and other potential investors interested in taking a piece of the company, according to one of the people. Mr. Ackman set himself apart, this person said, with his genuine interest in the business, connection with management and eye for growth.

"The total addressable market is every person on the planet," said Mr. Ackman about Universal. "Every time a song gets played on Spotify, Apple, Peloton, YouTube, the artist gets paid, the songwriter gets paid and Universal gets paid."

Mr. Ackman started discussing a potential combination with Universal and Vivendi in November after Jacqueline Reses, a Pershing Square Tontine director, introduced him to a member of Vivendi's board, some of the people familiar with the matter said.

This week, Mr. Ackman flew to Paris, where he met Vincent Bolloré, the billionaire chairman of the supervisory board, and Vivendi CEO Arnaud de Puyfontaine, one of the people said. It was their first face-to-face get-together after months of Zoom meetings.

On Wednesday night, Mr. Ackman had dinner with Mr. Bolloré on the roof of Vivendi's offices overlooking the Arc de Triomphe. By Thursday, Mr. Ackman was back in New York and they agreed on a deal via Zoom.

While streaming has room to grow as markets around the world increasingly come online, the music business is increasingly looking to new partners across social media, videogames and fitness for revenue opportunities.

Universal artists include some of the most-streamed in the business, such as Taylor Swift, Billie Eilish and Drake, and its publishing arm houses some of the world's best-known songwriter catalogs, including Bob Dylan's.

Mr. Ackman said he believes streaming is going to grow for a long time, and described Universal Chairman and Chief Executive Officer Lucian Grainge as an icon of the industry.

Consumers embraced streaming over the past five years, which has made it possible for music to be played everywhere--not just on a car radio or blaring from a CD player. It is in your ears while you exercise, cook and play videogames. Spotify and others upended the model of owning CDs or digital downloads, with consumers instead paying a monthly fee or listening to ads in exchange for access to essentially all of the music in the world.

Maureen Farrell contributed to this article.

(END) Dow Jones Newswires

June 04, 2021 17:34 ET (21:34 GMT)

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