Universal Music Group announced Wednesday its intention to divest half of its ownership position in Spotify while expanding its share repurchase program, following a first quarter where revenue was dampened by unfavorable U.S. dollar exchange rates.
The music company stated that funds generated from reducing its Spotify holdings will fund the buyback initiative and be distributed to recording artists.
This announcement follows by three weeks an unexpected $64 billion acquisition offer from activist investor Bill Ackman, who contended that the market was undervaluing UMG’s 2.7-billion-euro investment in Spotify. Ackman’s proposal included liquidating this investment and allocating 1.5 billion euros from the sale toward financing the acquisition.
UMG’s leadership has now acted on its own initiative, authorizing the divestiture under its own conditions instead of directly distributing the funds to shareholders as Ackman had recommended.
This strategy enables UMG to fulfill its “Taylor Swift clause” — a 2018 agreement made when the superstar renewed her contract with the label, stipulating that revenues from any Spotify stake sale would be distributed among all artists without recoupment requirements.
The company also announced plans to initiate an additional 500-million-euro share repurchase program, pending shareholder authorization at the upcoming annual meeting, which would double its current buyback capacity.
Company leadership indicated they believe the stock is trading below its actual worth given the firm’s operational results and future outlook.
Revenue for the first quarter totaled 2.9 billion euros ($3.4 billion), remaining unchanged from the previous year when reported in euros but showing 8.1% growth when calculated in constant currency terms.
Adjusted EBITDA decreased 3.8% to 636 million euros, though it increased 3.9% when measured in constant currency.
Leading performers during the quarter included BTS, Taylor Swift, Olivia Dean, Morgan Wallen and the K-Pop Demon Hunters soundtrack, according to the company.
