Bill Ackman’s Pershing Square Capital Management has proposed a massive cash-and-stock acquisition of Universal Music Group (UMG), the creative home of Taylor Swift, Drake, and Bad Bunny.

UMG stock soared 13% on Tuesday following the announcement.

The deal, valued at approximately $64 billion, would merge UMG with Pershing Square SPARC Holdings, an acquisition vehicle. The move would create "New UMG," an SEC-registered corporation in Nevada that would be listed on the New York Stock Exchange (NYSE) and report under US GAAP standards.

Pershing is Universal's fourth-largest shareholder with a 4.74% stake.

In a letter to the UMG board, Ackman argued that the company's current valuation does not reflect its success. "While the business performance has been strong, UMG's share price has languished," the Pershing Square CEO said, referring to the company's primary listing on the Euronext Amsterdam.

By moving UMG to the NYSE, the billionaire investor aims to make the music label eligible for major US indexes, such as the S&P 500 (^GSPC). Such a move would force massive investment funds to buy the stock, theoretically driving up its value.

To support his case, Ackman noted that despite Universal's robust performance — with revenues up 60% since 2021 — the stock has dropped 23% in the same period. He described the stock as "dramatically underperforming," arguing that the slump is due to technical factors and market positioning, not the music business itself.

Among these factors, Ackman specifically cited "the postponement of UMG's US listing" and "uncertainty" regarding the 18% stake held by Bolloré Group, a French investment conglomerate specializing in transportation and logistics. However, he maintains that such issues can be resolved through this specific merger transaction.

Under the terms of the proposal, shareholders would receive 5.05 euros per share in cash — a total payout of 9.4 billion euros — along with 0.77 shares of "New UMG" for every share they currently hold. Pershing Square estimates the total package is worth roughly 30.40 euros per share, representing a 78% premium over the stock's April 2 closing price.

To help fund the deal, Pershing Square will contribute 2.5 billion euros, while another 1.5 billion euros will come from the sale of UMG’s stake in Spotify (SPOT). Notably, UMG artists are expected to receive 750 million euros from that Spotify sale, a move Ackman calls part of an "artist-centric model."

Beyond the balance sheet, the plan includes a leadership shake-up, bringing in Disney President Michael Ovitz as chairman. Ackman said Ovitz's 40-year relationship with UMG CEO Sir Lucian Grainge will provide the "strategic execution" needed to navigate the challenges in the age of AI and streaming.

Finally, New UMG would pivot its capital strategy to prioritize aggressive share repurchases and strategic acquisitions. Ackman projects the company could generate 15 billion euros in cash over the next five years to fuel this growth. The proposal is currently non-binding and requires a two-thirds vote from UMG shareholders to pass. If approved, Ackman expects the deal to close by the end of 2026.

Francisco Velasquez is a Reporter at Yahoo Finance. Follow him on LinkedIn, X, and Instagram. Story tips? Email him at francisco.velasquez@yahooinc.com.

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