Much of Pershing Square’s three-hour, 128-slide presentation Wednesday -- which included a 15-minute intermission and 45 minutes for financial details and a Q&A session -- served as a necessary primer on copyright, intellectual property, the intricacies of royalty payments and the state of music in the age of streaming and smartphones.
There was much more to PSTH’s attraction to UMG. Ackman cited UMG’s market leadership and 31% share of global music consumption; an attractive capital structure with little debt -- only 2 billion euros -- and no stock options or warrants; and strong free cash flow. Streaming margins are improving by the year and UMG outsources physical manufacturing instead of owning CD pressing plants, which it did in the past.
The most interesting aspects to Ackman’s presentation were the viewpoints he offered on UMG as an industry outsider: Pershing Square was able to come into UMG, through an introduction by PSTH directorto Vivendi, with fresh eyes and without bias. Its interest in UMG’s business model can be boiled down to two sentences: “The way to think about it is if you own Universal Music Group, you own a royalty on people listening to music,” explained Ackman.
So, Ackman encouraged investors to compare UMG to a SAAS -- software as a service -- company that collects recurring revenue and has fixed operating costs. Or, as Ackman phrased it, UMG is a “MAS” -- music as a service -- company.
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