UMG is a good relative investment at current levels (3.7% return) but lacks sufficient margin of safety for an absolute value classification; it becomes interesting only if the price drops enough to yield a 10% return.

Universal's stock has dropped by 50% over the past year and something like that . It was trading at 28 a short while ago . It is now at 14 . Let's see what happens.

But perhaps most importantly, just a few months ago, Bill Ackman was prepared to pay 30 per share, and now the stock is trading at 14.

The board of directors of Universal Music Group rejected Pershing's offer. They even said that a price of 30 was an undervaluation of the company, and now we are trading at 14.

Let's see if there is a margin of safety, take a look at the business, the financial outlook, discuss Ackman's thesis, and then conclude whether this is an absolute or relative investment.

An overview of the works of Universal Music Group. They own all the intellectual property rights to the music. This stock is traded in the Netherlands. The headquarters is located in Hilversum.

So, music, a lot of brands, have nine of the top 10 global artists on their roster. So, if you are a fan of Taylor Swift (Swifty), you might be interested in this company.

If you look at their share of the global market, it is large. The market is growing, especially the music streaming segment. They have the best artists there. I think the only artist they don't have is "Bad Bunny," but if it's a bad bunny (Bad Bunny), who cares?

Isn't that so? I have no idea who it is, but that's okay.

They are partnering with streaming platforms, working with China, collaborating with Tencent, and also betting on India, where growth is happening as people begin to listen to music and possibly pay for it.

The results weren't that great . Revenue growth slowed slightly; Profits are stable, but not as good as expected.

But the new free cash flow, and when and how they manage it, is questionable because there are so many investments that reduce the real free cash flow, but they say, "Well, the investments don't matter."

Let's look at the higher free cash flows. This is a big difference when you compare it to the market value. Is the free cash flow 1.5 billion or half that amount? This is extremely important.

They are changing and investing a lot. When it comes to spending free cash flow, the key question is: Is this flow for the present or for the future? Artificial intelligence was discussed, and there doesn't seem to be much impact.

They pay dividends based on their calculated net income. Therefore, we arrive at an interesting sum of one billion for a good return on distributions. They made a major acquisition by buying " Downtown", but they are also buying back shares.

And if you look at the year as a whole, well, it was a good year, 1.5 billion adjusted , 2 billion, that looks very good. But here we return once again to cash flows. Before investing, investments, then we reach lower levels.

Where do they invest? Other investments, capital expenditures , investments in catalogs. They have taken over " Downtown". They paid a billion or so for very low earnings before interest, taxes, depreciation and amortization ( EBITDA). This is a controversial situation.

Good growth over the past few years. Also, net income doubled. It's stable, there's nothing wrong with that. This is something worth thinking about . Liabilities rose from 5.4 billion to nearly 13 billion.

Equity has not grown much because it is paid out entirely in the form of dividends.

Cash from operations looks good and is in line with net income. Then we have the distribution payments, one billion. But these distributions are paid out, and at the same time, total liabilities increase.

So, the question is, what is the true value of creating money?

Here I might disagree with Bill Ackman a little. Let's look at his thesis . He gave a great presentation in April 2026, and he also discussed this in online articles.

His theory is that with new contracts with streaming platforms , and with higher prices, Universal Music Group should get more money from that increase, and therefore revenues and profits should continue to grow.

But the stock has fallen significantly, and Bill Ackman saw value there, and a very cheap valuation, according to Bill Ackman. Why did they perform so poorly? Because of the other owners, because it is not listed in the United States, and because it is not sufficiently debt-funded.

It could also sell its $ 2.7 billion stake in Spotify, which they do to fund share buybacks. Now we come to what Bill Ackman suggested doing. The whole story boils down to 5 euros in cash and shares in the new " Universal Music" group that will be created through a merger with "Pershing Square Holdings" as a separate entity.

Then, regarding the cash equivalent, do you think Bill Ackman wanted to offer 9 billion in cash? no. 2.5 billion from Pershing Square funds . The remainder will come from the company itself, through the company selling a 3% stake.

It wasn't an acquisition like "Here you go, you get 30 euros per share". Rather, it was an acquisition with the message, "Here you go, you get 5 euros per share." Of those 5 euros per share, 4 euros are already yours because I receive them from the company.

So, in practice, this acquisition project from Bell was 1.5 euros per share plus the new share that he already owned.

That is the question. Bell valued UMG's new stock at 25 while it was at 17. Why was it valued at that much ? Because you will receive an American multiplier of 25, not 16, in addition to cash. Now you know the reason.

His outlook for UMG stock going forward is that the deal alone will double your position, then earnings per share will grow over the years, the price-to-earnings ratio will grow, and UMG will reach a stock value of 74 in December 2030.

That's a very good return. This is 5 times that.

Why will this happen? Because Bill says so. Well, when Bill says something, it happens.

More leverage, more buybacks, more of the American company selling off its assets to finance it, an underutilized budget , and more borrowing. The plan then was to free up cash, return it to shareholders, make it a more agile company, grow over time, and list in the United States because nobody wanted to invest in Europe. That's why everything might be cheaper.

Inclusion in the S&P 500 index, and the negative bid, should push things upward. So, in practical terms, Bill wanted to buy the company for a pittance using the company's own money.

Of course, the owners who actually own the company said, "We can do it ourselves if we want to ." They rejected his acquisition bid.

He discussed how they could grow, distribute profits, and everything, great returns, and a low valuation. It should be traded at 30 times the earnings due to its quality. Well, everything was based on re- evaluation, from a profitability multiple of 15 to 30.

Discussion of content quality, where only the best songs are listened to. If Spotify raises its prices, UMG should make money there too. In short, Ackman's equity price-to-earnings ratio moves to the American standard , with increased leverage, and you will earn 4 times your money.

Just two days before the company announced its rejection of Bell's proposal, he had already sold his entire stake in Universal Group.

So, we now have a billion in annual cash distributions, with potential for growth, and a billion in buybacks after the sale of Spotify shares. However, if we look at investments, the real free cash flow needed to sustain 5% growth is not 1.5 billion, but 700 million.

So, you can never know for sure , but this is what you can know. A return of 3.7% , and I think this will continue. So, from a relative perspective, it is a good investment, but from an absolute perspective we need more.

A 4% return, and 4% growth, i.e., a total return of 8%. With a total return of 8% , I have classified it here as a return with relative risk, not a value investment.

If the stock falls further due to some crisis we are unaware of, and the return reaches 10%, then it might become interesting.