When the Universal Music Group becomes a public company in September, it could list on a U.S. stock exchange in addition to its planned listing on the Amsterdam Euronext, providing the newly public company access to a fresh group of investors.
That news came during a three-hour presentation on June 23 by Pershing Square and its CEO Bill Ackman about the definitive agreement reached by UMG parent Vivendi and Pershing Square’s SPAC, Pershing Square Tontine Holdings, to acquire a 10% stake in UMG, which will spin off from Vivendi this fall.
A dual listing provides a company with additional liquidity and demand from U.S. investors, says Bernstein analyst Matti Littunen. “Some U.S. funds are only allowed to invest in U.S.-listed stocks, for example, and a dual listing would lower transaction costs and risk for all U.S. investors.” Also, listing on a U.S. exchange “would address any risk to a discount,” said Ackman, referring to the discount that European stocks trade at relative to U.S. stocks.
One reason U.S. stocks trade at a premium is because the U.S. has relatively more “growth” stocks that trade at higher multiples. Adjusting for that difference and focusing only on internet stocks shows the European stocks trade at a 7% premium compared to U.S. stocks, Barclays analyst Julien Roch noted in a March 4, 2021 report.
Pershing Square Tontine Holdings will acquire that 10% stake in UMG at a €35 billion valuation, a price that will give PSTH investors upside if UMG trades at higher values assigned by multiple equity analysts. Ten analysts tracked by Billboard have an average UMG valuation of €39.8 billion and range from J.P. Morgan’s €50 billion to Citi’s €30 billion.
Until the PSTH deal, the best reference point for UMG was Tencent’s purchase of a 20% stake in UMG at a €30 billion valuation nearly two years ago. But the music business’ outlook has arguably improved since then: UMG’s revenue and operating margins are growing by double digits and the global recorded music market is consistently growing by high single digits.
The U.S. government does not have laws or regulations that would preclude a dual listing, noted Ackman. “In fact, I’ve spoken to the New York Stock Exchange at length,” Ackman said. “They would love to have Universal listed on the exchange. They are going to pre-clear Universal once they see the prospectus for Universal filed in Amsterdam.” UMG’s board of directors — not Pershing Square, Ackman was careful to say — would make the decision to pursue a dual listing. But, he continued, if the board chooses that route, “listing on the exchange could happen within a matter of weeks” after the September listing on the Amsterdam Euronext.
Seeing UMG’s stock on a U.S. exchange is hardly a done deal, however. Although Ackman spoke with certainty about a dual listing, he later tempered his previous comments, saying UMG could “possibly, someday [list] on a U.S. exchange — hopefully someday soon.” A Pershing Square representative declined to comment for this article, while a Vivendi representative did not respond to requests for comment.
In Pershing Square, Vivendi has a blue-chip, high-profile U.S. investor. “One of the reasons why Vivendi chose us as a counterpart in this transaction is really because of our shareholder list,” said Ackman. “We’ve got a lot of fantastic, long-term investors” that are “predominantly” based in the U.S. and are not typically shareholders of Vivendi, which trades on the Euronext Paris exchange, he added. “We’ve heard from both institutions and retail investors that they would vastly prefer a New York Stock Exchange or Nasdaq listing for the company.” Ackman also said that UMG could choose to trade as American depository receipts, a common option for foreign companies that gives investors the right to obtain the foreign company’s share.
But a dual listing also comes with additional costs — especially a full listing on a stock exchange rather than an American depository receipt. “In addition to exchange listing fees, they’d have to comply with SEC disclosure and reporting requirements, which can be onerous even for a large company,” says Littunen.
If the new UMG board opts for a dual listing, Ackman estimates it would happen between the Sept. 27 listing on the Amsterdam Euronext — Vivendi says the listing will happen by that date — and when Pershing’s SPAC distributes its UMG shares to investors sometime around Thanksgiving. Bernstein’s timeline has September 21 as the listing day and September 23 as the day shares will be allocated to Vivendi shareholders.
Many music-related companies are listed on U.S. exchanges: Warner Music Group, Spotify, Tencent Music Entertainment, SiriusXM, Live Nation and iHeartMedia, among others. If Universal Music Group pursues a U.S. exchange, it will attract investors with knowledge of its business and the digital and broadcast companies that use its music.