Bill Ackman massively scales back expectations for the IPO of his Pershing Square USA, from $25bn to $2bn

Bill Ackman, whose Pershing Square Holdings is one of Universal Music Group (UMG)’s largest shareholders, has massively reduced the price target for the IPO of his new US-based closed-end fund.

Ackman gained a lot of press attention when Pershing Square Capital Management (PSCM) – the exclusive investment manager for Pershing Square Holdings – sold a 10% stake in June to a group of investment funds for $1.05 billion, valuing PSCM at $10.5 billion.

That reportedly increased Ackman’s own net worth by some $4 billion.

It also spurred renewed chatter about Pershing Square USA, a new closed-end fund that Ackman plans to float on the New York Stock Exchange. (His existing fund, PSH, trades on the Amsterdam exchange, like UMG itself.)

According to Bloomberg News, Ackman had been targeting an IPO price of $25 billion for Pershing Square USA, which would have made it the highest-priced closed-end fund ever to IPO.

Reports suggested that price may have had to do with the social media clout that Ackman has gained over the last year. Ackman has become something of a celebrity on X (formerly Twitter), with his posts criticizing what he sees as an increase in antisemitic sentiment in US politics since the October 7 attack on Israel by Hamas.

However, today (July 30), Pershing Square USA Ltd. confirmed that it has filed an update with the US Securities & Exchange Commission (SEC) indicating an aggregate offering size for its company of USD $2 billion — less than one-tenth of that initially-expected $25 billion price.

The firm expects an aggregate offering of 40 million shares priced at $50 each, according to today’s filing.

Bloomberg reports that the IPO is expected to price next week on August 5 after the NYSE’s close, with stock beginning to trading the next day (August 6).

The considerable scaling-back of expectations surrounding the fund raises some questions about the scale of capital Pershing Square USA will have for investments, including potential investments in the music industry.

In an analysis last month, MBW suggested that a $25 billion fund run by Ackman could potentially be good news for the music industry, and particularly UMG, as Ackman has been a booster for both, arguing that music is underpriced and that UMG is among the best bets within the industry.

In a letter priming the market for a reduction in the IPO’s size issued last Wednesday (July 25), Ackman said that Pershing Square had “reshaped [its] thinking on the transaction” after numerous meetings with potential investors in the capital markets space.

“In summary, there is enormous sensitivity to the size of the transaction. Particularly in light of the novelty of the structure and closed end funds’ very negative trading history, it requires a significant leap of faith and ultimately careful analysis and judgment for investors to recognize that this closed end company will trade at a premium after the IPO when very few in history have done so,” Ackman wrote.

“The $25 billion number in the media initially anchored investors in thinking the deal would be too large. Ultimately, I expect this ‘anchoring’ to be helpful to the final outcome.”

Ackman added in that letter: “We have committed to limit supply versus potential demand so that the [Pershing Square USA] stock trades well in the aftermarket including announcing a hard cap on size at $10 billion.”

Even at the new price point, the IPO of Pershing Square USA will be one of the largest this year, the New York Times reported.

“The $25 billion number in the media initially anchored investors in thinking the deal would be too large. Ultimately, I expect this ‘anchoring’ to be helpful to the final outcome.”

Bill Ackman, Pershing Square

As of last count, Ackman’s Pershing Square Holdings – that’s the Europe-based fund – holds some 10.25% of UMG, making it the third largest shareholder behind Tencent-led consortium Concerto Partners (roughly 20%) and former Vivendi president Vincent Bolloré (18%).

UMG is a crucial part of PSH’s portfolio, amounting to 24.9% of its net assets, according to the fund’s most recent annual report.

Ackman’s portfolio took a hit last week, when UMG’s share price dove by double digits following a Q2 earnings report that – though overall strong – showed a larger-than-expected slowdown in earnings from paid streaming subscriptions and a decline in revenue from ad-supported subscriptions.Music Business Worldwide