So, Bill Ackman won’t be buying Universal Music after all. Or, at least, not today. That’s got to be a good thing, right?
On Friday, Universal’s board turned down his $64 billion offer to buy the major music company - and with it the private equity shenanigans that would have gone alongside: load up the company with debt, flog off its most valuable assets (in this case UMG’s whopping Spotify stake), up sticks and list in New York (rather than Amsterdam, the company’s current home), install “psychopath” Epstein-associate Michael Ovitz, as chair.
And, of course, service the mountain of debt by finding lots of lovely synergies and cost savings - which usually means firing everyone.
Universal’s official line - released on Friday - is that the offer from Ackman, and his investment firm Pershing Square Capital, “materially undervalues” the company and “will not deliver superior value creation”.
In the company press release announcing the rejection of the deal, Sherry Lansing, Universal’s board chair, also told investors that the board “has full confidence” in Universal’s top banana Lucian Grainge “and his team’s ability to deliver sustainable growth and value creation for all stakeholders”.
With the board swatting away Ackman’s takeover bid, it finally feels like Grainge has stiffened his backbone and yanked his company out from under its most troublesome shareholder. That said, it didn’t actually take that much swatting. Ackman’s offer would have needed sign-off from two thirds of Universal’s shareholders and it turns out that the people who actually call the shots - and own a substantial chunk of the Universal empire - didn’t really like what they were being offered.
Universal’s most influential shareholder - the Bolloré family - controls around 28% of the company, some of that direct, and some through their stake in Universal’s former parent company Vivendi. Tencent holds another 11.4% - and closely aligns with Bolloré on various matters.Back in April, when he first proposed his “New UMG” deal - which was based on and justified by the woeful performance of the company’s share price - Ackman said that, “without Bolloré, we don’t have a transaction”, before teasing that Bolloré was “intrigued” by his bid which, Ackman told investors, was “music to my ears”.
Unfortunately for Ackman that turned out to be remarkably prescient and just two days before Universal’s board met to consider the proposal, Cyrille Bolloré - CEO of the family’s company the Bolloré Group - scathingly told his own shareholders that “the price is not there at all” and - referencing Ackman’s plan to partly fund the deal by selling Universal’s stake in Spotify - added that Ackman was “not making an offer with his own money. It’s our money, the company’s money”.
According to investment bank JP Morgan, that was not a huge surprise, saying in an advice note that Bolloré “does not need cash” and “would not want to reduce its influence” over Universal, noting also that “it has historically favoured a European listing and domicile for UMG”.
Bolloré, it seems, also has issues with Ackman himself, saying “I don’t know whether he is compatible with the management” style of Universal. “He is more abrupt, more rapid”.
And therein lies the rub. For a company like Universal, it makes little sense to hand over the keys to the castle to a slash-and-burn private equity swash buckler like Ackman - and even less sense to uproot a long standing European company and move it to the US, with all the uncertainty created by the Trump regime.
But the bigger problem is that saying “no” to Ackman is the easy part. Having a plan for what you do next is much harder. Having told its shareholders that Universal is worth far more than the €30.40 a share that Ackman was offering, the board now has to prove it - and the current share price suggests that the market is far from convinced.
Notably, when Universal recently announced its new flashy AI remix gimmick with Spotify, Spotify’s share price rocketed up from around $430 to nearly $530 before settling back to today’s $500-ish a share, while Universal stayed pretty much flat.
That’s not particularly good news if you’re setting yourself up as a music company with a valuable future. And, of course, there’s a fairly rich irony that Universal did win from that announcement - but only through the increase in Spotify’s share price, just as it’s about to start selling down its Spotify shares.
To be fair to Universal’s board, it isn’t fiddling while Rome burns. Back in March and just days before Ackman launched his takeover, Universal announced a €500 million share buyback - partly funded by its lovely Spotify lucre - with CFO Matt Ellis telling the market that that company saw “a meaningful dislocation in UMG’s market valuation” - which is corporate gobbledegook for “our share price is in the bin” and, as it happens, the exact argument Ackman was about to build his takeover on.
By the end of April, during its Q1 earnings call, the board went further, raising the buyback authorisation to €1 billion and declaring that the company’s shares were “undervalued relative to its business performance and prospects”. That second €500 million comes with strings, though, needing fresh shareholder approval at the next AGM - and can only take place once the first €500 million has been completed by its deadline of October.
Why is this all relevant though?
The tougher question is where actual growth - to boost Universal’s share price over the long term - is going to come from. The classic major label answer is to buy it - roll ups of smaller labels and other entities.
That’s exactly what Universal has spent the past few years doing - buying [PIAS] from co-founders Kenny “Fuck the haters!” Gates and Michel Lambot, splashing the cash on its arms-length rights acquisition vehicle Chord Music Partners, and splurging $775 million - and more - on its hotly contested Downtown deal that handed it the plumbing through which an enormous amount of independent music reaches the streaming services.
That track - buy your way to market dominance and growth - just got a lot narrower though. Downtown - which turned over €891m last year but made only €40m EBITDA and was bought at around 17x earnings - cost Universal a year of regulatory wrangling, a furious independent sector and a forced sale of part of the business before Brussels would sign it off. And it has left the European Commission primed to pick over every acquisition Universal attempts from hereon.
The company that spent 2024 and 2025 quietly buying up the independent sector’s power players and infrastructure will find the next one far harder to land.
That leaves another option - growing the slow way, the hard way - by signing more artists and developing more hits. But it’s here that Universal runs into something more fundamental. Signing the best artists and building the biggest hits is expensive, and fraught with risk. Universal’s single biggest asset is its catalogue - the Beatles, Sinatra, the back pages of pop history - and it is increasingly catalogue that is winning the streaming war.
The tracks that people return to time and time again are what underpin the biggest music companies - something seen recently when Sony Music gamed the UK Official Chart Company’s rules to direct streams from Michael Jackon’s catalogue to steal the number one slot in the album chart during the week the latest Jackson biopic hit cinemas.
Numbers from music data outfit Luminate reinforce this point: catalogue takes the bulk of streams, while consumption of brand new releases is flat or falling. And that is something that is likely only to increase as streaming further beds in around the world.
A catalogue like Universal’s earns money for doing very little - which was more or less the key thesis behind Ackman’s takeover bid, when he said that “UMG is best understood as a high-quality, capital-light royalty on the long-term growth of global music in which streaming penetration and appropriate price increases support long-term, high-single-digit revenue growth for the next decade and likely thereafter”.
The snag is that you don’t defend your place in the market with catalogue - you defend it on the frontline, signing, developing and breaking the new artists who become the catalogue of the future. That’s slow, expensive, and where most of a label’s money and effort goes. And the frontline is getting harder.
Independent and DIY artists now account for the overwhelming majority of human created music uploaded to the streaming platforms, and the majors’ share of new releases keeps shrinking even as their back catalogues keep paying out. So Universal sits on an asset that swells in value while doing nothing, bolted to a business that costs a fortune simply to stand still.
The problem is that the sort of owner who prizes the predictable stability offered by long term royalty streams tends to look less favourably at the high risk business of running a record label. That, with the spreadsheets stripped out, was the real proposition behind Ackman’s bid - treat Universal as a royalty stream, run the catalogue for cash, and let the costly business of finding the next global superstars look after itself, without it serving as a drain on Universal’s catalogue income.
But that’s now the slightly uncomfortable spot the board seems to have talked itself into. While it has rejected Ackman’s overtures, it looks increasingly like Universal is reaching for the solution he wanted: the buyback, the asset sale, and the financial engineering of a company that increasingly looks like yet another royalty fund - rather than the artist development business it insists it is.
You can rewrite the rules of streaming in your own favour to bring a larger share of the pie towards you, and you can launch clever sounding AI gimmicks to show you’ve got a handle on the future - but even that, essentially, is the same play: fresh money squeezed out of old recordings, the catalogue made to work a little bit harder and only the very biggest frontline artists - today’s future catalogue drivers - getting a look in.
Ackman might have been shown the door, but it increasingly feels like he’s got most of what he wanted - without the expense and hassle of buying the company.
And, of course, he hasn’t actually gone anywhere. Ackman still holds just under 5% of Universal, down from the 7.6% he was throwing his weight around with back in 2024 - and he’s not known as a man who retreats gracefully.
From here he can sell down his stake - further depressing the share price and piling more pressure on a board that has staked its future on returning shareholder value. He can sit tight and make noise - a thorn in the side of the company, his critique a matter of public record and at least half-way vindicated by Universal’s own actions.
Or - most likely - he can simply wait. Universal’s inability to boost its own share price is making his argument for him and he’s been circling Universal since before it floated. Unless Grainge and his team are able to magic a significant turnaround from somewhere - expect more AI announcements perhaps? - then it’s only a matter of time before frustrated investors begin to ask whether Universal needs a change of direction.
And what that means for the wider music business as we enter the AI era is potentially bleak - because at some level, none of this is really about Ackman, corporate maneouverings or Universal.
The maths that drove Ackman’s bid - that catalogue pays and frontline costs - is the same maths that Warner and Sony - and pretty much any other label of scale - is staring at.
Universal is almost inevitably edging towards being a royalty fund business, with or without Ackman, because that is what the market is rewarding. And sooner or later the market recognises that Universal’s “dislocation” in market valuation is that the market is valuing Universal like a business that can deliver significant year on year growth, rather than as a business that can deliver steady, safe and predictable royalty streams year after year.
And at that point the business either has to be fundamentally revalued as a royalty assets business, or someone needs to make a big decision about whether the two different businesses can co-exist - and, indeed, whether the frontline can exist without the foundations and cash of the catalogue business.
And this is where AI comes in. If the easy money is in working old recordings harder, and AI makes it increasingly cheaper to wring more out of catalogue - remixes, AI covers, “superfan” AI products - and deliver the margin expansion Universal so desperately needs - then it’s almost a foregone conclusion that this is where the emphasis goes.
And with it, the case for the slow, costly, hit-and-miss business of finding and breaking new artists gets weaker each year - and also the rationale in keeping a large and expensive workforce to service the frontline business.
Signing new talent is how you build the catalogue of the future, but it’s also the easiest thing to begin to squeeze when the catalogue you’ve already got can be made to work harder with very little cost implication. The incentive, then, across all three majors, is to milk everything you own and sign only the very safest bets - and let everyone else take the initial risk, before sweeping in to outbid indies when an artist comes to the end of their initial deal.
Which brings us back to where we started. Beating Ackman feels like a win, and for the people who actually make the records it probably is - nobody sane wants Michael Ovitz in the chair and billions of dollars of new debt on the books.
But the reality is Ackman was never really the problem, and getting rid of him doesn’t change the fundamentals of Universal’s business. It has sent him packing - for now. But the logic that made the bid make sense is alive and well, and Lucian Grainge is - whether he likes it or not - running a company that is quietly drifting towards being the very thing - a glorified royalty fund - that Ackman wanted to buy.
