(Reuters) - Billionaire investor William Ackman’s blank-check firm Pershing Square Tontine Holdings is nearing a deal with Universal Music Group that would value the world’s biggest music label at nearly $40 billion, two people familiar with the matter said. A deal of that size, if completed successfully, would mark the biggest-ever merger involving a so-called special purpose acquisition company (SPAC), similar in size to the $40-billion deal that ride-hailing giant Grab Holdings clinched in April. Pershing Square Tontine Holding’s shares were down nearly 6% at $23.5 a share in after-market trade, close to its initial public offering (IPO) price of $20, after news of the potential deal broke. The closer the SPAC shares trade to their IPO price, the more skeptical investors are that the deal will be completed. The sources cautioned that there was no guarantee that Universal and Pershing Square would finalize the deal and the talks can still fall apart. Ackman told his investors late last month that he hoped to make an announcement on the Tontine target within weeks. Without naming the company, Ackman said on the call that his team was “working to complete the transaction” and that he likes the business and loves the management team. SPACs like Pershing Square Tontine raise money in an initial public offering with the aim of merging with a private company. For the private company, the process is an alternative to listing its shares through an IPO. The money raised for a SPAC sits in a trust earning interest until the SPAC manager identifies a company to buy. Nearly a year ago, in July 2020, Pershing Square raised $4 billion in what was the biggest IPO by a blank-check firm. Guggenheim Investments, hedge fund The Baupost Group, and Wells Capital Management are among the biggest investors in Pershing Square Tontine. The deal with Universal could be financed using the cash in trust, without the need of financing through a so-called private investment in public equity, or PIPE, as they are popularly referred to, two people familiar with the talks said. If, however, investors choose to reject the deal and redeem their shares, Ackman could face a significant hurdle in putting together the financing required to close the deal. Universal Music is majority-owned by French media giant Vivendi, which last month said the equity of the music label was worth 33 billion euros ($40 billion), or more than the market value of the parent company. Tencent Holdings owns a roughly 20% stake in Universal. Vivendi has been exploring taking Universal public, including through a traditional IPO. In documents released ahead of Vivendi’s general meeting scheduled in June, Vivendi said that Universal was drawing interest from potential investors and that it could sell some of its stake to a “strategic partner” ahead of the distribution of Universal’s shares. At the time, Vivendi said it intended to keep at least a 10% stake in the company for a long period of time. “Universal Music is a business that can be valued without speculating about it having a future,” said Erik Gordon, a professor of business at the University of Michigan. “The terms of the Tontine SPAC also are better than the terms of most SPACs.” The Wall Street Journal reported the news earlier on Thursday. (on.wsj.com/3vPqub3) A spokesman for Pershing Square Tontine declined to comment. Universal Music Group did not immediately respond to a Reuters request for comment. Reporting by Svea Herbst-Bayliss, additional reporting by Eva Mathews in Bengaluru; Editing by Shinjini Ganguli and Sonya Hepinstall Our Standards: The Thomson Reuters Trust Principles.