Bill Ackman: Universal and Warner are both under-valued… but UMG’s the right bet for us

After a slumbersome late summer, the past few days has seen the blockbuster music industry roar back into life.

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Kanye West’s released his new album – breaking Apple Music records in the process – while Drake’s confirmed his new LP is coming this Friday.

Meanwhile, Apple [854 articles]”>Apple‘s bought a music streaming service: Primephonic. And today (August 31) we’ve learned that billionaire Bill Ackman is going to control 10% of Universal Music Group [2,378 articles]”>Universal Music Group after all.

An affiliate of Ackman’s Pershing Square Holdings has committed to buy an additional 2.9% of UMG for $1.15bn – adding to Ackman/Pershing Square’s existing 7.1% stake.

The news was confirmed this morning in a to-the-point memo from UMG’s current majority-owner, Vivendi. Yet Ackman’s motivation for the deal was actually revealed a few days prior, in a letter from the uber-investor to Pershing Square shareholders that was published last Tuesday (August 24).

In that note, delivered alongside Pershing Square’s half-year fiscal results, Ackman gave his view on Universal Music Group, but also on Warner Music Group [1,782 articles]”>Warner Music Group – which floated on the Nasdaq last year and currently carries a $19.6 billion market cap.

What does Ackman think about UMG and WMG? In short, he thinks they’re both under-valued – but that, out of the two, UMG’s the better bet.

And he believes that his investors’ chances of making a long-term loss on their near-$4 billion combined investment into Universal is “minimal”.

Wrote Ackman in his letter: “The music industry’s transformation had been largely invisible to Wall Street until Warner Music Group, the number three player after UMG and Sony [1,414 articles]”>Sony, began trading publicly on the NASDAQ last year.

“We believe that investors have just begun to appreciate the change in industry dynamics, and as a result, have not yet given proper recognition to the value of WMG or UMG.”

Added Ackman:: “It is within this context that we found the opportunity to purchase a large stake in UMG to be extremely attractive. UMG is the number one company in the industry by market share with a 32% global market share in recorded music. UMG has a world-class management team led by Sir Lucian Grainge [382 articles]”>Sir Lucian Grainge who has spent his entire career in the business.

“We believe that investors have just begun to appreciate the change in industry dynamics, and as a result, have not yet given proper recognition to the value of WMG or UMG.”

Bill Ackman

“Under Vivendi’s ownership and Lucian’s leadership, UMG has increased its strong market position by investing to build a global presence in 180 markets around the world. As a result, it is well-positioned to participate in the global growth of music streaming, which will be increasingly driven by demand from the emerging markets.

“UMG’s management strength and long-term investment strategy are reflected in its industry-leading financial performance which include accelerating double-digit revenue growth (up 26% in Q2 2021), and its 21% compounded operating income (“EBITA”) growth, about twice that of WMG, over the last four calendar years, which accelerated in the first half of 2021 to 34%.”


Ackman said in the note that he was looking forward to UMG’s arrival on the Amsterdam stock exchange, which will take place in September when Vivendi distributes 60% in UMG stock to shareholders.

Wrote Ackman: “UMG will have a nearly net-debt-free balance sheet when it becomes a public company. Unlike WMG which is controlled by Access Industries [230 articles]”>Access Industries with super-voting stock, UMG shareholders will have one vote per share and an independent board, no longer controlled by Vivendi.

“We believe that the price that we are paying for UMG of about 21 times calendar year 2021 operating income (EBITA), or less than 19 times our estimate of 2022 operating income (EBITA), is a highly attractive price for a business of this quality and long-term growth potential.”

Bill Ackman

“We believe that the price that we are paying for UMG of about 21 times calendar year 2021 operating income (EBITA), or less than 19 times our estimate of 2022 operating income (EBITA), is a highly attractive price for a business of this quality and long-term growth potential. UMG will be the largest investment in our portfolio by a substantial margin.

“We size investments based on our estimate of the probability of our suffering a permanent loss of capital compared to the opportunity for potential gain. At the price we are paying for UMG, we believe the risk of permanent loss is minimal, and the opportunity for long-term gain to be both highly probable and unusually large compared to other opportunities.

“In other words, we believe that UMG has the potential to be one of our most successful long-term investments.”


Pershing Square and its affiliates’ acquisition of 10% of Universal Music Group is costing USD $3.95 billion in total – with $2.8 billion paid for the 7.1% stake, and another $1.15 billion committed for the additional 2.9%.

Ackman has struck both deals based on an enterprise value for Universal Music Group at €35 billion ($41.3 billion at current exchange rates).Music Business Worldwide

Source: Bill Ackman: Universal and Warner are both under-valued… but UMG’s the right bet for us

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