Bill Ackman has been forced to restructure a $4bn deal to buy a tenth of Universal Music Group, the label behind artists such as Taylor Swift, following a backlash from US regulators and investors over the deal’s complex structure.

The restructuring marks the end of the hedge fund billionaire’s efforts to strike a first-of-its-kind deal by a special purpose acquisition company after agreeing last month to buy the stake from Vivendi, Universal’s owner.

That deal, which had been struck by his Spac called Pershing Square Tontine Holdings, will now be completed by entities controlled by his Pershing Square hedge fund.

In a letter to PSTH investors on Monday, Ackman blamed problems with regulators at the US Securities and Exchange Commission over his Spac’s ability to complete the transaction.

“Our decision to seek an alternative initial business combination (IBC) was driven by issues raised by the SEC with several elements of the proposed transaction — in particular, whether the structure of our IBC qualified under the NYSE rules,” Pershing said on Monday.

It added: “Yet, despite the inability of PSTH to consummate the UMG transaction, our counterparty was not left at the altar. Pershing Square will be fulfilling PSTH’s commitment to Vivendi.”

In his letter, Ackman also acknowledged that he underestimated the negative reaction from PSTH investors to the deal’s complexity and structure.

“We also underestimated the transaction’s potential impact on investors who are unable to hold foreign securities, who margin their shares, or who own call options on our stock,” he wrote.

Shares in PSTH have dropped 18 per cent since the deal was announced in early June. He said PSTH has 18 months to complete a new transaction and that he would only pursue conventional Spac deals.

In a separate statement, Vivendi confirmed the change and said Pershing Square would still buy a 5 to 10 per cent equity stake. If it is less than 10 per cent then it will offer the rest for sale to shareholders before Universal Music is hived off into a standalone company in September.

Vivendi had planned the sale of a last slice of Universal Music, the world’s biggest music label and its most profitable business, as a way to bring in cash ahead of the separation. It has already sold 20 per cent of UMG to a consortium controlled by China’s Tencent.

The carve-out will be done via a distribution in kind in which existing shareholders of Vivendi will become shareholders in the new company, recently valued at €35bn and to be listed in Amsterdam.

Activist investors such as Blue Bell Capital had pushed Vivendi to tweak the conditions of the UMG separation in a public campaign but had stopped short of agitating to stop it. Vivendi won overwhelming support for the move at a shareholder vote in June.

The value of music companies has soared in recent years as streaming services such as Spotify revived the industry, reaping billions in royalty payments to music labels.

The industry’s “big three” labels — market leader Universal, Sony Music and Warner Music — control nearly 80 per cent of the market, which is forecast to more than double by 2030 to reach $45bn, according to Goldman Sachs. 

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