Is Pershing Square Holdings’ investment in Universal Music Group finally coming back? The stock gained 15 percent in July, driving a 5.2 percent gain for Bill Ackman’s Pershing Square during the month.
Universal’s gain, which was the best in Pershing Square’s highly concentrated portfolio of stocks during July, helped the hedge fund deliver a 15.6 percent gain so far this year.
But until now, Universal — where Ackman sits on the board — has hardly been the home run the hedge fund manager envisioned when Pershing Square took a $4 billion stake in September 2021. At the time, French conglomerate Vivendi partially spun off Universal in an initial public offering. Nearly two years later, the stock is now around $23 per share, only slightly above its $21.70 IPO price.
And despite the July gain, this year Universal remains the worst performing stock for Pershing Square, rising only 3.6 percent for the year through July. In 2022, Universal accounted for 2.5 percentage points of Pershing Square Holding’s gross losses, which culminated in a net loss of 8.8 percent.
The Universal investment seemed promising at first. On the day Universal went public, Pershing Square made $1.6 billion when shares rose 40 percent. That year, Universal contributed 8.7 percentage points of Pershing Square Holdings’ gross gains as it earned 26.9 percent net of fees.
The Universal gain more than offset the 6.5 percentage point loss contributed by Pershing Square Tontine Holdings, the special purpose acquisition company that Ackman was planning to use to invest in Universal. The deal was complicated and unusual for a SPAC because it wouldn’t have ended in a merger, and the SPAC would have had money left over.
Tontine’s stock tanked after Pershing Square struck a deal for Tontine to take a 10 percent stake in Universal ahead of its partial spinoff. And within weeks the U.S. Securities and Exchange Commission said it would not approve the SPAC’s plans, and the Tontine board abandoned the proposal.
At the time, Ackman said his hedge fund firm would make the Universal investment to keep his commitment to Vivendi. To do so, he sold Pershing Square’s stake in Agilent to raise cash, then went out and launched another vehicle to raise the rest of the money required.
Pershing Square’s hedge funds plowed $2.9 billion into Universal, and Ackman raised another $1.1 billion through a co-investment vehicle, bringing the total to $4 billion — and making it Pershing Square’s largest holding.
By the end of July, the co-investment vehicle had amassed $1.36 billion, slightly less than the $1.38 billion it had before the IPO, according to calculations based on Pershing Square documents.
After the SEC nixed Ackman’s plans for Tontine, the hedge fund manager was unable to find another partner and ended up liquidating the SPAC. To reward the SPAC’s investors, Ackman proposed a new-fangled security, called a SPARC, or special purpose acquisition rights company, in which they would receive warrants. But the SEC has pushed back on the idea. Since Ackman first proposed SPARC two years ago, Pershing Square has filed 11 amended proposals as it tries to address the SEC’s concerns, two of them in July. It has spent close to $10 million on the effort, but so far, the regulator has not given it the green light.
Meanwhile Pershing Square still lags the broader market, as the S&P 500 has gained more than 19 percent this year. But it did beat the S&P 500’s gain of 3 percent in July.
