In June, Pershing Square said an affiliated SPAC had agreed to buy a 10% stake in Universal from French media conglomerate Vivendi SE for about $4 billion. The deal valued Universal at some $40 billion. Typically, such deals involve a previously listed SPAC, or blank-check company, merging with an unlisted business, taking it public.

Mr. Ackman’s deal was different: New York Stock Exchange-listed Pershing Square Tontine Holding Ltd. didn’t intend to merge with Universal but instead become a shareholder ahead of an already-planned listing by Universal in the Netherlands. People familiar with the matter said it was structured that way because of tax and legal implications for Vivendi, The Wall Street Journal reported.

The structure was hailed by some as a feat of financial engineering that also freed Mr. Ackman from some of the usual constraints of SPACs.

Some observers, though, saw the structure as a concession to the reality that in an increasingly crowded SPAC market, and the relatively large size of the vehicle, Mr. Ackman wasn’t able to pull off a more conventional deal, as had been expected. In a sign of waning investor enthusiasm, Pershing Square Tontine shares have fallen 18% since the original transaction was announced on June 4.

On Monday, Pershing Square said it was dropping the SPAC plan because of issues raised by the SEC with several elements of the proposed transaction. The SEC wasn’t convinced the structure qualified under NYSE rules for such vehicles, Pershing Square said in a letter to Tontine shareholders.

Universal is home to stars including Taylor Swift, Queen and the Beatles and commands some 40% market share in the U.S. recorded-music business, and around 30% globally.

Mr. Ackman had triggered one of the biggest guessing games on Wall Street in his hunt for a SPAC target. The activist investor had made frequent public pronouncements about a mystery deal. After launching the $4 billion vehicle last summer, Mr. Ackman eyed some of the biggest private companies, including Airbnb Inc., which has since gone public, Stripe Inc. and Bloomberg LP. The SPAC’s shares had been trading at a roughly 25% premium to their initial public offering price, reflecting the high hopes for a deal, the Journal reported.

Vivendi said Monday it approved the request to transfer the share-purchase agreement with the SPAC to a number of funds tied to Mr. Ackman. It also said those funds would acquire between 5-10% of Universal. If the stake were less than 10%, Vivendi said it would sell shares up to that amount to other investors ahead of the planned September listing.

Mr. Ackman’s Pershing Square will sit as a large shareholder alongside a consortium led by Chinese internet company Tencent Holdings Ltd., which owns a 20% stake in Universal.

Write to Nick Kostov at Nick.Kostov@wsj.com