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Hipgnosis Songs Fund’s board of directors said on Monday that it would support a takeover bid from Blackstone if the private equity giant officially files its $1.5 billion offer for the music royalty fund. Blackstone said on Saturday (April 20) in what it called a “possible offer” that it was prepared to bid $1.24 per […]
Private equity giant Blackstone bid $1.5 billion to buy Hipgnosis Songs Fund on Saturday (April 20), marking a significant escalation in the fight for control of the troubled music royalty fund and its collection of rights to songs by Neil Young, Journey, Lindsey Buckingham, Blondie and others.
Blackstone is offering $1.24 per share in an all-cash offer that represents an 8.7% premium over the previous day’s closing share price, and is significantly higher than the $1.4 billion takeover bid that Nashville-based Concord Chorus made for the fund earlier this week.
Blackstone already owns two other entities under the Hipgnosis name — the private music assets investment fund Hipgnosis Songs Capital and the investment advisor Hipgnosis Song Management — and its bid on Saturday showed the private equity behemoth is willing to flex its muscle to maintain assets under the Hipgnosis umbrella.
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The five-year-old, London-listed Hipgnosis Songs Fund has cut its net asset value and shareholder dividends in recent months, as it struggled to address accounting errors and infighting between its board and investment manager that have angered investors already frustrated by an underwhelming stock price.
On Thursday (April 18), the board of directors announced in a filing with the London Stock Exchange that it had agreed to recomment a $1.402 billion proposed takeover bid from Concord to shareholders, which values each Hipgnosis share at £0.93 ($1.14). While the board said that institutional investors representing 30% of the fund’s outstanding shares were on board to vote in favor of the deal with Concord, it still needs shareholder approval from investors holding a total of 75% of shares.
Blackstone’s Hipgnosis Song Management, the investment adviser to the public fund and the private fund (Hipgnosis Songs Capital), has the right to outbid Concord and any other rival bidders to take the fund’s assets private, according to an option in its contract laid out when the fund went public in 2018.
The option was created with the sensitivities unique to music rights in mind. Hipgnosis Songs Fund was founded and built by Merck Mercuriadis, a longtime music executive and manager for artists like Elton John, Beyoncé and Guns N’ Roses. Mercuriadis used his relationships in the music industry to build the fund’s portfolio of rights to hit songs, and this option in the investment advisory contract was designed to give artists confidence that their catalogs would never trade hands — something that famously angered Taylor Swift.
However, since Hipgnosis Songs Fund investors served the board of directors the equivalent of a no-confidence vote last fall, this option has presented hurdles for the board in its effort to secure outside bids for the portfolio.
In its offer, which references Concord’s bid as $1.16 per share due to fluctuations in exchange rates, Blackstone said it “strongly encourages the board of Hipgnosis to recognise the significant increase in value available to all shareholders under the terms of its Fourth Proposal, over the $1.16 as set out in the Concord Offer, and to work with Blackstone to reach agreement on a unanimously recommended Firm Offer in an expeditious manner.”
Investors want serious, swift changes to make Hipgnosis Songs Fund more profitable and stable. That was the key takeaway from more than 80% of investors’ votes last week on how the London-listed trust that owns rights to songs by Journey, Bruno Mars and Rihanna should proceed. While the landslide vote opened the door to possibly winding up the pioneering publicly traded music royalty trust, it doesn’t spell an immediate end — more like the long beginning of company-wide rethink to improve the company’s stock price.
More than 80% of Hipgnosis investors voted in favor of the board drawing up “proposals for the reconstruction, reorganization or winding-up of the company to shareholders for their approval within six months,” the board said in a regulatory filing.
“These proposals may or may not involve … liquidating all or part of the company’s existing portfolio of investments.” Adding further uncertainty to the fund’s future is that, while its board devises a plan to restore regular dividends and boost a lagging share price, it must simultaneously find replacements for its chair, Andrew Sutch, and two other members, after those three either resigned or failed to win re-election to the board seats last week.
Sources say Round Hill Music Royalty Fund’s outgoing board chair, Rob Naylor, is being considered to chair of Hipgnosis Songs Fund’s board. Naylor is a former London banker and currently the chief executive officer of Intuitive Investments Group, a fund that invests in high growth life sciences companies. Naylor would have been closely involved in negotiating Round Hill’s $469 million sale of its public fund to Concord, which shareholders approved in mid-October and closed this week.
Jefferies analyst Matthew Hose says one route the board might take would be similar to Round Hill’s sale — Hipgnosis Songs Fund could sell itself to its sister fund Hipgnosis Songs Capital, which is jointly run by Mercuriadis’ investment advisor Hipgnosis Song Management and private equity goliath Blackstone, or it could sell itself just to Mercuriadis’ investment advisor Hipgnosis Song Management.
Although investors soured on an earlier plan to sell about 20% of the Hipgnosis Songs Fund to Hipgnosis Songs Capital, with Blackstone’s backing it remains among the most capable buyers and it knows the portfolio of songs well, analysts agree. There’s also a clause in the investment advisory group’s contract that says if the public fund ends its contract with investment advisor, the investment advisor can buy out the fund. The clause, which was laid out in the fund’s 2018 filings when it went public, was intended to help Mercuriadis reassure artists whose catalogs Hipgnosis acquired that he would always stay on as the relationship manager in charge of their songs and legacy.
While Hose says a sale to Mercuriadis and the investment manager could benefit all parties, “the question is whether this board is able to propose an ‘open’ sale process for the portfolio that extracts this fair value for shareholders, while still honoring the manager’s option, or will the existence of the option simply prohibit any realistic bids?”
Analysts who cover investment trusts like Hipgnosis Songs Fund say that about 80% of the time following a no continuation vote, a fund winds up, either through selling its assets to multiple buyers or all of the portfolio to a single buyer and then distributing those proceeds to shareholders minus any debt repayments.
The deliberation over which direction to take the fund will also rely on an updated valuation of the portfolio, which Hose says will likely see a downgrade since the disclosure in October that the fund’s valuers had inaccurately estimated certain CRB III royalty funds.
“We see the potential for weakness in the portfolio,” Hose says. “An independent valuation of the portfolio by a new valuer that gains the trust of the market … could be crucial here.”
Investors in Hipgnosis Songs Fund on Thursday overwhelmingly demanded a new board make structural changes to the troubled music rights company in ways that don’t include selling off part of its 65,000-song catalog, which includes compositions by Neil Young, Shakira and the Red Hot Chili Peppers.
At the company’s annual meeting of shareholders in London, a majority of investors voted no on a resolution “to continue running the fund in its current form”–what’s known as a continuation vote — and they rejected a plan to sell a package of 29 song catalogs to Hipgnosis’ Blackstone-backed sister fund, according to the fund.
The ‘no’ vote signals unequivocal shareholder anger with the company founded by Merck Mercuriadis, and it kicks off a 6-month countdown for the board to come up with a plan “for the reconstruction, reorganisation, or winding-up of the company,” possibly “liquidating all or part of the company’s existing porfolio of investments,” according to the board’s statement.
“While shareholders have not supported our proposed transaction or the continuation vote, it is clear that they share our belief in the inherent quality and potential of these assets,” Sylvia Coleman, senior independent director of Hipgnosis Songs Fund said in an emailed statement. “Directors are now expediting the appointment of a new chair who will drive the strategic review we have already announced, with a clear focus on delivering improved shareholder value.”
Investors voted against the re-election of Hipgnosis Songs Fund board Chair Andrew Sutch at the meeting, speeding up the timetable for his departure. Sutch had already announced he would step down before the company’s next annual general meeting in 2024. On Wednesday, the day before the company’s annual meeting, fund directors Andrew Wilkinson and Paul Burger resigned, and last week, the board embarked on a strategic review into the company’s management team.
“Shareholders have spoken and sent a clear message that the status quo is unacceptable and that a total reset is required,” Tom Treanor, the head of research at Asset Value Investors, which owns a roughly 5% stake in the fund, said in an email. “We look forward to a refreshed board working closely with shareholders to turn the company around.”
Mercuriadis, the former manager of Elton John and Guns N’ Roses, will continue as Hipgnosis Songs Fund’s investment advisor. Mercuriadis founded Hipgnosis in 2017 and took it public on the London Stock Exchange (LSE) in July 2018.
Hipgnosis Songs Fund’s share price rose 1.2% to 75.90 British pence ($0.92) at 11:20 in London.
Hipgnosis Songs Fund’s board said on Thursday it was launching a strategic review of changes to its current management team and other options that could maximize shareholder value, as the company braces for a critical continuation vote next week.
Hipgnosis Songs Fund’s (HSF) stock price hit an all-time low earlier this week after scrapping its upcoming shareholder dividend because of an accounting error that resulted in a nearly $12-million downward revision of certain expected streaming royalties.
Shares in the company, which owns the rights to songs performed by Rihanna, Fleetwood Mac, The Pretenders and more, fell by more than 10% on the news, and investor confidence appeared shaky this week, as the the five-year-old music royalty fund prepares for a do-or-die continuation vote on Oct. 26.
“This decision follows extensive engagement over recent weeks with shareholders in light of the forthcoming continuation resolution,” the board said in a statement announcing the strategic review. “These meetings highlighted a continued belief in the company’s portfolio and growth prospects … as well as the need for changes by the company in order to deliver value for shareholders.”
The board said it explored terminating its contract with the fund’s investment advisor, Hipgnosis Song Management, run by HSF founder Merck Mercuriadis, but said it concluded it is not in shareholders’ interest, “as it would be an event of default under the revolving credit facility” if the fund fired its investment advisor before finding a new one who was approved by the HSF’s banks.
The board reiterated its recommendation that shareholders vote in favor of continuing the fund, saying it believes “it is in shareholders’ interest to have a strategic review with the widest array of options for the company to consider and to identify changes that will focus on recovering and delivering improved shareholder value.” The board went on to say it asked its investment advisor to remove a clause in its contract that gives the group overseen by Mercuriadis the right to acquire HSF’s portfolio if its advisory contract is terminated, but that request was declined.
The company’s stock rose about 2.33% to 74.70 British pence ($0.90) as of 10:22 in London.
Continuation votes are required for all publicly traded trusts listed on the London Stock Exchange to provide investors of closed-end funds with an exit strategy.
In addition to a thumbs up or down on continuation next week, HSF investors will also be asked to vote on the sale of 29 catalogs from HSF’s portfolio–including the works of Shakira, Barry Manilow and other artists–to its privately held sister fund Hipgnosis Songs Capital, which is backed by Blackstone.
The board reiterated on Thursday its support for the proposed sale, saying it would use the $440 million in proceeds to reduce the company’s debt and buy back up to $180 million worth of its own stock.
The fund’s board chairman Andrew Sutch announced plans to step down last month, and the board said it has hired an executive search firm to look for his replacement.
The boad also said it also has secured new terms with lenders that put the company back in compliance with its fixed charge cover ratio covenant. The company risked breaching compliance with its lenders over the past week after it was forced to cut expectations for revenue from the U.S. Copyright Royalty Board’s Phonorecords III (CRB III) to $9.9 million, from $21.7 million.
Hipgnosis Songs Fund has set a date of Oct. 26 for its shareholders to vote on the proposed sale of some 29 song catalogs and a separate vote on whether to keep the fund going under founder Merck Mercuriadis‘ advisory, the company said on Thursday (Sept. 29).
Earlier this month, Hipgnosis announced its plans to sell a package of assets that includes rights to songs performed by Shakira, Barry Manilow, Rick James and others to its sister fund — the privately held Blackstone-backed entity, Hipgnosis Songs Capital — for $440 million.
Hipgnosis Songs Fund — or SONG, as it’s abbreviated on the London Stock Exchange — has struggled with a sagging share price that values the company at a discount to its assets’ worth. The Oct. 26 shareholder vote represents a key milestone in the young company’s five-year lifespan.
In its statement on Thursday, Hipgnosis Songs Fund’s board said it’s in talks with third parties to consider outside bids for the package of assets, with those discussions set to resolve by Oct. 23. The board previously said it would use proceeds of any asset sales to buy back up to $180 million of the company’s stock and pay down its revolving debt balance, two measures aimed at achieving a “re-rating of the share price.”
If a majority of shareholders vote “yes” on the company’s continuation vote, the board has committed to holding the next continuation vote in January 2026, followed by a third in 2028.
The board also said that if the discount between Hipgnosis Songs Fund’s share price and operative net asset value reaches 10% or more on average over the month of January 2025, it will terminate its investment advisory agreement with Mercuriadis’ Hipgnosis Song Management. The agreement with the founder as an investment advisor will be “terminable by the company on 12 months’ notice,” according to the statement.
The board added that chair Andrew Sutch will retire as a director before the next annual meeting in 2024, and that Andrew Wilkinson will retire from his director role by the end of this year. Cindy Rampersaud will take Wilkinson’s place after he retires. The departures mean Hipgnosis Songs Fund will have five directors in the future.
In a vote of support for retaining Mercuriadis’ Hipgnosis Song Management as SONG’s investment adviser, the board said its approach had led to a 44% total return on the 29 music catalogs that Hipgnosis Songs Fund proposes to sell to its private sister fund since the initial dates of purchase.
“The board and the investment adviser firmly believe that the company has a unique portfolio of iconic, culturally significant songs that will deliver strong long-term value as they benefit from the structural tailwinds in the music industry,” according to the statement. “Furthermore, the board believes that the investment adviser’s approach to song management should enable the company to outperform the wider music market.”