Money Stuff: Not Merging Is Not Securities Fraud

A thing that sometimes happens is:

1. Two companies agree to a merger. The buyer will buy the target at some premium to its current stock price.
2. They put out a nice press release saying things like “we are doing this merger” and “here is the price” and “we expect it to close in the third quarter.”
3. The target’s stock price goes up to reflect the premium in the deal.
4. The next step is getting antitrust approval.
5. The deal does not get antitrust approval. Antitrust regulators decide that it is bad for competition, so they block it.
6. The target’s stock price goes down.

This is not what anyone wants, and obviously when the companies are contemplating and negotiating the merger they will think about the antitrust risk and have some plan to get approval, and some optimism that it will work out. But companies are generally willing to take some risk and sign merger agreements even without a 100% probability of getting antitrust approval. Sometimes that goes badly.

Everything, I often say around here, is securities fraud: If a bad thing happens to a public company, and its stock goes down, shareholders will sue, saying that they were misled about the bad thing. The case here is stupid but straightforward:

• The target company put out a press release saying “we are doing this merger” and “here is the price” and “we expect it to close in the third quarter.”
• The stock went up.
• The target ended up not doing the merger, shareholders did not get the deal price, and the deal did not close in the third quarter.
• The stock went down.
• Therefore the shareholders were defrauded: The press release misled them into buying the stock at a high price, and when the truth came out the stock fell.

This is sort of a reductio ad absurdum of “everything is securities fraud,” but it does all check out. Obviously lower down in the press release they say “we still need antitrust approval” and “nothing is certain,” but is that enough? Anyway here’s a federal court decision from last week finding that it’s not securities fraud:

Capri Holdings (owner of Michael Kors and Versace) and Tapestry, Inc. (owner of Kate Spade and Coach) faced this dilemma when they tried to combine. The two accessible-luxury handbag companies made a long list of public statements about the merger while the Federal Trade Commission reviewed it. Ultimately, the FTC thought the merger posed a serious risk to competition and so sued to block it. The antitrust watchdog won and the merger fell apart, meaning that many of defendants’ optimistic statements about the deal fell flat. Several investors in Capri now sue, alleging that these public statements were fraudulent. But not everything is securities fraud. For a variety of reasons, defendants’ statements were not fraudulent, so I dismiss the complaint without prejudice.

The judge does not cite me, but I do kind of feel like “not everything is securities fraud” is co-opting my schtick. 

To be clear, the complaint here was not really about the initial merger press release; it’s about subsequent statements that the companies made expressing confidence that the deal would close, even after the FTC started objecting. “We continue to be confident because we know that this is a transaction that is pro-consumer,” they said, and “there is no question that this is a pro-competitive, pro-consumer deal and that the FTC fundamentally misunderstands both the marketplace and the way in which consumers shop.” Like, that was their position, and the FTC had a different position, and the FTC won. Does that make their position securities fraud? Well, it was wrong, and shareholders bought stock in reliance on their wrong but emphatic statements, so you could make the argument. But this judge didn’t buy it.

By the way, this is not that far off from the securities-fraud lawsuit that Elon Musk lost last month: He agreed to buy Twitter Inc., he changed his mind, he went around tweeting that he would get out of the deal, the stock went down, Twitter disagreed and sued him, Twitter won and he closed the deal. His position was wrong, and shareholders sold stock in reliance on his wrong but emphatic tweets, so they sued him for securities fraud and won. Arguably the difference is that Musk’s position was more wrong than Capri’s?

The stock of Universal Music Group NV closed at €17.105 on Euronext Amsterdam last Thursday, for an equity market capitalization of about €31 billion. (Friday and Monday were market holidays in Amsterdam.) Today, Bill Ackman’s Pershing Square announced a proposal to buy 114 million shares of stock of UMG for about €2.5 billion. (Pershing Square already owns 4.6% of UMG’s stock.) If I do some simple math — divide €2.5 billion by 114 million — I get a price of about €22 per share for 6.2% of the company (implying about a €40 billion valuation), about a 29% premium to last week’s close. [1]

Bill Ackman’s math is different. From the announcement:

Pershing Square Capital Management, L.P. (“Pershing Square”) today announced that it has submitted a non-binding proposal (the “Proposal”) to the Board of Directors of Universal Music Group N.V. (“UMG”) to acquire all outstanding shares of UMG through a business combination transaction (the “Transaction”), together with a value creation plan designed to deliver significant benefits to UMG stakeholders.

And:

Total consideration package of cash and stock estimated to be worth €30.40 per share, a 78% premium to UMG’s stock price

“Bill Ackman’s Pershing Square Offers to Buy Universal Music Group for Around $60 Billion,” reports the Wall Street Journal. “Ackman Pitches $65 Billion UMG Deal for US Listing, Stock Boost,” says Bloomberg. “Bill Ackman’s Pershing offers to buy Universal Music in €55bn deal,” says the Financial Times.

I get 6.2% of the stock for €2.5 billion; everyone else gets 100% of the stock for €55 billion. I suppose there are about three transactions here:

1. Ackman wants UMG to merge with his special-purpose acquisition company, Pershing Square SPARC Holdings Ltd. The transaction would thus technically be an acquisition of all of the shares of UMG by Pershing SPARC, although the surviving company would be called UMG and would mostly be owned by existing UMG shareholders, and the consideration paid to those shareholders would mostly be stock in the company they already own. (Some of it would be cash, about €9.4 billion worth; see Step 3 below.) If you own UMG stock, you’ll still mostly own UMG stock, but it will be a subtly altered UMG. Michael Ovitz will be on the board of directors, for one thing, along with two Pershing Square representatives. Also, UMG is incorporated in the Netherlands and listed in Amsterdam; New UMG would apparently be incorporated in Nevada and listed on the New York Stock Exchange, which is arguably good for value. Bloomberg reports: “Ackman has sparred with the music company, which last month postponed a plan to list shares in New York citing an uncertain market environment.” This might speed that along.
2. Ackman has a series of activist plans to increase shareholder value. One plan is to lever the company up a bit: New UMG would borrow €5.4 billion and return the cash to shareholders. Another plan is to sell UMG’s stake in Spotify Technology SA for about €1.5 billion and return that cash to shareholders. Also, “New UMG will adopt a revised capital allocation policy,” aiming to increase leverage, dividends and share buybacks, as well as “prudent reinvestment in the business and strategic acquisitions that create long-term value for the company and its shareholders.”
3. Also Pershing Square and its SPARC will kick in about €2.5 billion for some stock. Add this to the €5.4 billion of new debt and €1.5 billion of Spotify proceeds and you have €9.4 billion of cash to buy back about 17% of UMG’s stock, as part of the cash-and-stock merger in Step 1. 

The trick is to combine those three transactions, so that instead of saying “I have an activist plan to increase value” or “I want to buy some stock,” you can say you want to acquire 100% of the company, for cash and stock (of the company), at a valuation reflecting your assumed impact of your activist plans.

I kind of like it? Saying that you want to acquire 100% of the company at a €55 billion valuation sounds better than saying that you want to acquire 6% of the company at a €40 billion valuation. You get from €40 billion to €55 billion by counting the impact of your activist plans in the valuation of the company. You get from 6% to 100% by, essentially, syndicating most of the deal to the existing shareholders. 

Incidentally! Ackman is proposing to do this deal out of Pershing Square SPARC. SPARC stands for “Special Purpose Acquisition Rights Company”; it’s like a SPAC (a special purpose acquisition company) but lighter on its feet. Ackman invented the SPARC, and we talked about it a few times when he did. Essentially a SPAC is a company that goes out and raises a pool of money from investors, and then finds a company to acquire with that money. A SPARC reverses that: It finds a company to acquire (here, UMG) and then goes out and raises money from investors. The investors are people who hold the rights of the SPARC, presumably a self-selected group of people who would like to invest alongside Bill Ackman in whatever he cooks up. 

Here, €1.4 billion of the €2.5 billion equity check would come from “Pershing Square Funds and Affiliates,” that is, actual existing pools of cash that Ackman controls. The other €1.1 billion would come from the SPARC, which currently has roughly zero dollars; it would have to go out and raise that money. That is: In addition to syndicating most of this €55 billion (?) deal to existing UMG shareholders, Ackman plans to syndicate €1.1 billion of it to people who might want to get into his SPARC deal. Who are those people? Presumably some combination of people who like UMG and people who like Ackman. He has bet a lot on his own fundraising prowess recently: He is currently “looking to raise between $5 billion and $10 billion” for a new closed-end fund, and this is, I guess, in addition to that? “All Transaction equity financing” for the UMG deal “will be backstopped by Pershing Square and affiliates,” though, so UMG doesn’t have to bet too much on his fundraising prowess.

Elsewhere: “Ronda.”

I’m sorry this is good comedy:

A Goldman Sachs Group Inc. private credit fund said investors sought to pull just under 5% of cash in the first quarter, narrowly escaping a broader exodus that has forced peers to cap withdrawals.

Goldman Sachs Private Credit Corp., which manages a so-called non-traded business development company, met redemption requests in the first quarter amounting to 4.999% of its outstanding shares, according to a filing on Monday. That contrasts with peers including Blue Owl Capital Inc. that saw redemption requests dramatically higher than an industry-wide 5% limit. ...

“We are the only non-traded BDC in the peer group whose repurchase requests came in below the standard 5% quarterly cap,” the fund said in a letter to shareholders.

Here are the filing and the investor letter. GS Credit tendered for 17,285,147 shares (5%) and got 17,281,858 (4.9990%), incredible. They made it with 3,289 shares to spare. Meanwhile, “in the first quarter of 2026, GS Credit generated approximately $1.04 billion in gross subscriptions,” or roughly 12.1% of net asset value, for net inflows of about 7.1%.

How did they do it?

The fund pointed to its reliance on institutional capital rather than retail investors, which have been bolting in larger numbers amid worries over lending standards and exposure to companies vulnerable to disruption from artificial intelligence.

There is something odd about that explanation. A bunch of other BDCs that have gotten redemption requests for a lot of shares have emphasized that very few of their clients have redeemed. Blue Owl Credit Income Corp. got redemption requests for 21.9% of its shares, but “said 90% of its shareholders chose not to tender, reflecting concentrated withdrawal demands.” (Disclosure: I am in OCIC and did not tender. Also disclosure, I used to work at Goldman.) Ares Strategic Income Fund got 11.6% redemption requests, but said that “the majority of repurchase requests were made by a limited number of family offices and smaller institutions in select geographies who represent less than 1% of our over 20,000 shareholders.”

How should you read those statements? I think they mean something like “most of our small retail clients did not redeem, but some of our bigger clients redeemed all of their shares.” Why would the big clients redeem while the small clients stay put? Lots of possible reasons: Maybe investors in “select geographies” idiosyncratically need money; maybe a few financial advisers panicked and happen to have really rich clients. But it is not crazy to read those statements and think “hmm, the family offices and institutions are taking their money out while the regular retail investors are staying put, hmm.” It is not crazy to think that the sophisticated investors are the ones getting out.

Particularly because, as we have discussed a lot around here, private non-traded BDCs will redeem investors at 100% of net asset value, while publicly traded BDCs are currently trading at big discounts to NAV. If you like private credit, you can sell your private BDC at 100 cents on the dollar (if it will let you out!) and buy a public BDC with very similar assets at 70 or 80 cents on the dollar. That seems like the sort of trade that a sophisticated and well-advised investor might do, while a lazy retail retirement saver with a small amount of money in a BDC — like me! — might not bother.

But here is Goldman being like “our investors are smart institutions, not like those flighty retail investors in other BDCs, so they are not panicking and in fact are pouring more money into our fund.” Which is also not crazy: There is a widespread narrative that institutions continue to like private credit even as retail investors are panicking, that the credits are fine and the retail market perception is the problem, that sophisticated investors look through the panic and stay the course. It’s just not the story I might have predicted based on the other BDCs.

Elsewhere in private credit:

“I got a request from a client today saying, ‘get me out of all my private credit investments.’ They weren’t in any, but I think it shows the idea around the panic,” said Phil Blancato, chief market strategist at Osaic, which advises on $700 billion of assets. 

I guess that is another data point for “actually it’s the unsophisticated retail investors who are panicking.”

Last June, we talked about “the tumbleweed blowing through JPMorgan’s private credit trading desk.” As Bloomberg News reported:

It’s become something of a running joke in the world of private credit.

About once a month, JPMorgan Chase & Co. traders send out a list of dozens of loans they’re looking to buy and then, on most occasions, fail to get their hands on a single one. It’s not about the price. They’re willing to pay up. The problem is almost no one in private credit is willing to sell, let alone to a Wall Street bank.

Ten months and a lifetime ago. Now, 9fin reports, JPMorgan is still sending out private-credit runs, and still no one is replying, but now it is trying to sell:

JP Morgan is attempting to reignite interest in private credit secondaries as the threat of new AI tools stirs unease in public markets, according to 9fin sources.

Several private credit funds are seeking to shed their exposure to software loans at mostly above 95 cents on the dollar, and JP Morgan is sounding out interest from potential bidders that have an opportunistic credit bent, sources said. ...

This could represent yet another push for the bank to boost loan trading and bring transparency to privately-held assets after a tepid reception in years past. 

Eventually they’ll hit the sweet spot where some people are looking to sell private credit loans and other people are looking to buy private credit loans at the same time, so they can match them up.

Extremely good. The chief executive officer got E. coli on the first day and spent the retreat in his room (“They nailed an IV bag to the bedpost”), but chimed in:

One of our biggest mistakes was hiring a former Navy SEAL to pump the team up. As I’m in my room dying, I could hear them out there doing all their drills and yelling. So I’m in here thinking, This is terrible, but it sounds terrible out there, too.

One takeaway — which investment bankers, and Navy SEALs, know — is that people bond through adversity, so torturing and poisoning your employees might actually be a better team-building activity than, you know, “fun.” Forsan et haec olim meminisse iuvabit might be the right analysis of corporate retreats. “There are probably hundreds of little inside jokes that came from that retreat,” says the chief product officer, apparently fondly.

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