• Ackman's Pershing Square Holdings hedge fund will now take the stake instead of his SPAC.
• Vivendi shareholders recently backed the spinoff of Universal, a move that gave the company an enterprise value of 35 billion euros ($41.55 billion).
• The music corporation is home to stars including Taylor Swift and Lady Gaga.

Billionaire investor Bill Ackman's blank-check company Pershing Square Tontine Holdings said Monday it has dropped a deal to buy 10% of Vivendi's flagship Universal Music Group.

Ackman's SPAC last month agreed to buy 10% of the French media group's crown jewel for around $4 billion. Now, his Pershing Square Holdings hedge fund will take the stake instead of the SPAC.

Vivendi shareholders recently backed the spinoff of Universal, a move that gave the company an enterprise value of 35 billion euros ($41.55 billion). The music corporation is home to stars including Taylor Swift and Lady Gaga.

Pershing's SPAC announced Monday that its board had unanimously decided not to proceed with the purchase after discussions with the U.S. Securities and Exchange Commission.

"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," Ackman said in a letter to shareholders, published Monday.

Pershing Square said that in light of its experience with the proposed UMG deal, it will now be pursuing a "conventional" SPAC merger. It has 18 months to close a new transaction unless shareholders vote for an extension.

"While we are disappointed with this outcome, we continue to believe that the unique scale and favorable structure of PSTH will enable us to find a transaction that meets our standards for business quality, durable growth, and a fair price," Ackman said.

Pershing's share price has fallen 18% since the UMG purchase was announced on June 4, and Ackman said it had underestimated shareholders' reaction to the "complexity and structure" of the transaction.

Despite dropping the deal, Pershing insisted that Vivendi was not being "left at the altar," and reiterated that it still intends to become a long-term shareholder of UMG after its public listing on the Euronext Amsterdam in September.

Vivendi announced in a statement Monday that it had approved a request from Pershing to assign the rights to purchase 10% of UMG's share capital to "investment funds with significant economic interests or management positions held by Mr. William Ackman."

"The equity interest eventually acquired in UMG will now be comprised between 5 and 10%. If it were less than 10%, Vivendi still intends to sell the shortfall to other investors before the distribution of 60% of the share capital of UMG to the shareholders of Vivendi scheduled to occur on September 21, 2021," the company added.

A 'dagger in the heart' of the deal

Ackman told CNBC exclusively on Monday that the SEC first approached his firm to express concern that the new entity being created as part of the deal would become an investment company.

"In order to address the SEC's concern, we changed the structure of the deal to provide that we were going to contribute the stock that we purchased to a trust — we thought that would address the issue," Ackman explained.

"Then we signed the deal, and then we pushed forward with the transaction, and then actually this week, in the last few days, the SEC raised, I would say, a 'deal killer,' which is they said that in their view, the transaction didn't meet the New York Stock Exchange SPAC rules."

He added that this call from the regulator was a "dagger in the heart of the transaction" and put Tontine in a "very awkward spot."

Ackman's main investment vehicle Pershing Square Holdings will now take on the stake. He expressed frustration at the SEC's objections and urged PSTH shareholders to complain to the regulator directly.

Clarification: This story has been updated to clarify that it's the blank-check company Pershing Square Tontine Holdings that will no longer be part of the deal.