Hipgnosis to Sell Song Catalogs Worth $465M to Boost Stock, Reduce Debt
Written by djfrosty on September 14, 2023
The board of directors of Hipgnosis Songs Fund said on Thursday that the music royalty fund founded by Merck Mercuriadis plans to sell two portions of its song catalog in a bid to increase its stock price and pay down debt.
The proposed sales include one package of assets that consists of 29 catalogs worth roughy $440 million, which the Blackstone-backed entity, Hipgnosis Songs Capital, has agreed to acquire. The second package of assets, worth $25 million, includes songs Hipgnosis Songs Fund acquired in 2020 from Kobalt, and is being shopped to external buyers.
The board introduced the proposed sales, which have a combined value of $465 million, alongside a proposal to buy back up to $180 million of its own stock, to pay down $250 million of its revolving debt and to introduce new, lower advisory fees to be paid to Hipgnosis Song Management Limited. The board says it believes the package of proposals, which must be approved by shareholders, will serve as a “catalyst for a re-rating of the company’s share price … (which) over the last 18 months … has not reflected the fundamental value of the company.”
This follows news last week of Concord’s $469 million bid for rival Round Hill Music Royalty Fund, a move that gave Round Hill and Hipgnosis’ stock prices a much-needed boost. Round Hill’s stock price spiked 65% after the acquisition announcement to $1.13.
“Given the substantial share price discount to fundamental value in recent months, share buy backs enable (Hipgnosis Songs Fund Ltd) to invest further into the remaining portfolio at a material discount to its fundamental asset value,” according to the statement. “These disposals are of the smallest magnitude possible that would provide the required capital to execute on this strategy, whilst ensuring that the ongoing investment case for Hipgnosis Songs Fund remains intact by protecting the strength of the remaining portfolio.”
The board says that the proposed sale worth $440 million that would go to Hipgnosis Songs Capital, a fund run by Mercuriadis’ Hipgnosis Song Management and Blackstone, reflects a multiple of 18.3x historical Net Publisher Share and is “designed to protect the strength of the remaining portfolio” because it will leave the London Stock Exchange-listed Hipgnosis Song Fund with a “concentration of culturally important and successful songs.”
Those songs, it says, represent 81% of the existing portfolio by fair value, including ownership in seven of the Fund’s 10 largest catalogs, and are mostly older vintages, such as 47 of Rolling Stone’s 500 Greatest Songs of All Time (down from the Fund’s current ownership stake in 52 of those songs.
The board says the sales price represents a 51% premium, compared to the asset’s valuation based on the company’s 30-day average market capitalization up to Sept. 13, 2023. It also represents a discount of 17.5% to the fair value of the package of assets compared to the valuation disclosed in the company’s most recent annual report, out March 31.
By comparison, Concord’s cash bid of $1.15 per share for Round Hill’s Music Royalty Fund represented a 67% premium to the share price and a 11.5% discount per-share net asset value ascribed to Round Hill by Citron Cooperman, a leading valuation expert.
With regards to the second proposed sale of rounghly $25 million-worth of songs, the board said it had long anticipated it would need to sell some of what it acquired from Kobalt’s Fund One.
“They were considered non-core as the company does not have perpetual ownership rights or the songs require ongoing accounting and reporting obligations that take up significant bandwidth which can be better focused on active song management,” the board said in the statement.
Billboard reported that a package of non-core assets was being shopped in July.
Hipgnosis Songs Fund will hold meetings for shareholders to vote on the proposals as well as the company’s first continuation vote on or before Oct. 25, according to the statement. If approved, the $440 million asset sale to the Blackstone-backed Hipgnosis fund will result in the the publicly listed Hipgnosis fund paying $6.7 million in corporation tax.