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Hedge-fund billionaire investor Bill Ackman withdrew his plan to acquire a stake in Universal Music Group via his SPAC, expressing doubts the SEC would approve the deal.
Ackman told shareholders in a letter on Monday that he did not think the SPAC "would be able to consummate the transaction" after the SEC had questioned the legality of the arrangement.
Having launched the largest SPAC ever last summer in hopes of acquiring a "mature unicorn," Ackman announced in June that it would be paying $4 billion for a 10% share of UMG, the world's largest record label by market share, whose roster includes Kanye West, Lady Gaga and Taylor Swift.
It was an unconventional twist on the SPAC, which has been subject to increasing regulatory scrutiny since becoming a hot Wall Street trend.
Shareholders in Pershing Square Tontine Holdings, Ackman's SPAC, would have gotten a slice of UMG along with rights to purchase shares of a future acquisition that Ackman's vehicle would make with its leftover cash. Ackman would have had a longer leash for making that next deal, ostensibly having fulfilled his SPAC's obligation to acquire a company within two years.
Instead, Tontine remains on the hunt. Unless its shareholders approve an extension, it has 18 months to find a new company.
"In light of our recent experience, our next business combination will be structured as a conventional SPAC merger," Ackman wrote.
The regulators followed in the footsteps of the many Tontine investors who didn't like the look of the deal. By Monday, Tontine's share price had fallen 18% since the UMG arrangement was announced.
"We underestimated the reaction that some of our shareholders would have to the transaction's complexity and structure," Ackman wrote.
Ackman added that Pershing Square, his hedge fund, still intends to take a long-term position in UMG, which is set to go public on the Amsterdam stock exchange later this year.
Snapchat users will now be able to use songs from Kanye West, Lady Gaga and Taylor Swift after Snap and Universal Music Group inked a deal that gives the social media network access to the music giant's expansive catalog.
The deal underscores the ongoing confluence of social media, music and ecommerce.
For UMG, the agreement provides an opportunity to boost exposure of its artists. The company has previously worked with Snap on a more piecemeal basis, with some of its artists' music already available on the app.
For Snap, which will use the music in its Sounds feature, the deal will help them compete with TikTok and other social media platforms increasingly reliant on music to engage users.
Sounds, launched in October, lets users incorporate songs in their video and photo posts and messages on Snapchat. Already the feature has been used in 521 million videos garnering 31 billion views, according to Snap. Nearly 45% of those were sent as direct messages, Snap said.
Olivia Rodrigo's hit song "Driver's License", which premiered in January 2021 under the UMG subsidiary Interscope label, has featured in over 10 million user-generated Snapchat videos using Sounds. Collectively those videos have been viewed over 325 million times, the companies said. Notorious B.I.G.'s 1994 hit "Big Poppa" has been included in 5 millions Snapchat creations, accumulating 108 million views.
As part of the deal, UMG will also be developing AR filters for Snapchat – which Snap calls lenses – tethered to some of its artists, according to a company statement. UMG noted that those lenses can be used to sell artist merchandise.
Terms of the deal were not disclosed, other than being described as a "global" and "multi-year agreement."
Snap and UMG have collaborated numerous times in the past. The two companies created a lens for Billie Eilish's 2016 single "Ocean Eyes." In 2018 Nicki Minaj created the first lens selling artist merchandise in conjunction with her album "Queen." And emerging artist Benee incorporated her track "Supalonely" into a lens in 2019, which has been viewed over 1 billion times.
Snap also has music deals with Warner Music Group, Sony Music Publishing and others.
Over five billion messages are shared on Snapchat per day on average, Snap said.
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Hedge-fund billionaire investor Bill Ackman is getting a 10% share of one of the world's largest music companies, valued at $40 billion, and performing some Wall Street-styled gymnastics to do it.
Ackman launched the largest SPAC ever last summer with the goal of acquiring a "mature unicorn" to take public with his new blank-check company. Those plans have changed. Ackman's SPAC – Pershing Square Tontine Holdings Ltd. – will instead be acquiring a piece of Universal Music Group: a carveout from an already publicly-traded company, Vivendi, which itself was planning on going public.
By doing so, Ackman fulfills his SPAC's obligation to acquire a company within two years. But Tontine will live on, only as a new type of financial entity: a so-called SPARC.
UMG is expected to go public on the Amsterdam-based Euronext exchange later this year.
Tontine will pay about $4 billion for its 10% stake in UMG – the world's largest record label by market share, whose expansive roster includes Kanye West, Lady Gaga and Taylor Swift. UMG's sweeping catalog provides Ackman and his shareholders access to an asset that has steadily been attracting investors, who've paid big sums for music publishing rights as digital music soars.
The deal must still be approved by shareholders of UMG's parent company Vivendi. A vote is scheduled for Tuesday.
Meanwhile, the deal meets Ackman's acquisition obligation, and leaves him flush with about $2.9 billion in cash still available to the blank-check company. Tontine will continue searching for another acquisition target, according to a company statement.
Shareholders will get a slice of UMG along with rights to purchase shares of a future acquisition, under the arrangement that inspired the term SPARC, or special purpose acquisition rights corporation. Those rights, or warrants, are expected to be tradeable on the NYSE or Nasdaq, Tontine said.
The financial engineering puts a spin on the SPAC, one of the hottest Wall Street trends of late.
Tontine said it was attracted to UMG's 5% revenue growth in 2020, when streaming proved resilient during the pandemic. Music streaming comprises the majority of UMG's revenues.
Competitor Warner Music Group went public in 2020 at a market value of $15.6 billion. That provided a tidy sum to Len Blavatnik, who bought WMG for $3.3 billion in 2011.
Tontine's 10% stake in UMG is expected to settle within a few weeks.
Shares in Tontine closed flat Monday at $22.70. They fell sharply, however – about 13% – when news first surfaced earlier this month that it was exploring a 10% UMG acquisition.
"During the course of our negotiations with Vivendi, it became clear that various tax, legal and other strategic considerations precluded Vivendi from entering into a 'traditional' de-SPAC merger transaction, and from selling more than 10% of UMG," the Tontine announcement said. "Even with the additional complexity, time, legal, and other costs that these constraints created, we were convinced that the opportunity to acquire such an extraordinary business was the best option for our shareholders."
Tontine will hold a livestream presentation and Q&A about the deal on Wednesday.