Bill Ackman, the CEO of Pershing Square Capital Management, has faced difficulties with his significant investment in Universal Music Group (UMG). Despite his personal connection to the company through his grandfather, a former songwriter, UMG has negatively impacted the performance of Ackman's hedge fund.
As of late 2023, Pershing Square is underperforming compared to the broader stock market, with UMG being a key factor in this disappointing performance. The hedge fund's value has only increased by 7.9 percent through November 20, while the S&P 500 has surged over 25 percent during the same period. UMG's stock has declined approximately 14 percent year-to-date, contributing to what Ackman described as the fund's second-worst year since 2018.
Ackman initially planned to invest in UMG's IPO through his special purpose acquisition company (SPAC), Pershing Square Tontine Holdings. However, the deal was blocked by the Securities and Exchange Commission. Undeterred, Ackman committed $2.9 billion of his hedge fund's assets to the UMG IPO, raising an additional $1.1 billion from other investors to secure a 10 percent stake in the company. This investment, totaling over $4 billion, is significantly larger than Ackman's other positions.
While Pershing Square has seen some profits from UMG over time, including dividends of about 2 percent annually, the stock's current trading price is concerning. UMG's stock is now trading below $22 on the Amsterdam stock exchange, following disappointing earnings reports and a drop in growth for its streaming and subscription business.
In an attempt to revive UMG's stock price, Ackman proposed moving the company's listing to a U.S. exchange. However, this proposal has faced resistance from stakeholders who prefer to maintain the listing in Amsterdam for tax advantages. Nearly 48 percent of UMG's shares are held by insiders, making changes to the listing strategy complex.
Ackman claimed he had a contractual right to initiate the listing change, but UMG refuted this assertion. The company clarified that while Pershing Square could request a U.S. listing, it would require the sale of at least $500 million in UMG shares. UMG emphasized that Pershing does not have the authority to mandate a change in the company's domicile or to delist from Euronext Amsterdam.
The performance of UMG has been a concern for Ackman and his investors. Following a second-quarter earnings report that revealed a decline in growth for its streaming and subscription services, UMG's stock price fell by approximately 25 percent. Although there was a slight recovery in the third quarter, it was insufficient to bolster investor confidence or significantly impact the stock price.
As Ackman navigates this challenging investment landscape, the future of Pershing Square's stake in Universal Music remains uncertain. The hedge fund's performance has been negatively affected, and investors are questioning the viability of Ackman's strategy. The ongoing dialogue regarding UMG's listing and its implications for future growth will be closely monitored by market participants.