- Board fighting for company’s survival after investors voted for discontinuation
- Company is in dispute with its investment adviser Hipgnosis Songs Management
Embattled music investor Hipgnosis Songs Fund is set to offer up to £20million to lure potential takeover bidders.
The music rights fund, which owns catalogues from the likes of Shakira and Neil Young, will offer the payment as a form of ‘cost protection’, it said on Thursday.
Its board is battling to secure the long-term future of the company and protect the value of its assets, amid an ongoing dispute with its investment adviser over an alleged conflict of interest.
In October, Hipgnosis saw investors reject a $440million deal to sell 29 music catalogues, vote to oust its chairman and call for an end to its continuation as a closed-ended investment company.
Hipgnosis Songs fund owns the rights to music catalogues including Shakira and Neil Young
This prompted a strategic review under a refreshed board that will see a reorganisation of the trust or a wind-up within six months.
The board of Hipgnosis, which saw the value of its assets slump last year, is also in dispute with the fund’s investment adviser Hipgnosis Songs Management (HSM).
The rejected October asset sell-off would have seen Hipgnosis Songs Capital, a limited partnership indirectly controlled by HSM in partnership with Blackstone, become the owner of the assets.
HSM also owns a ‘call option’, which gives it the right to purchase the entire Hipgnosis portfolio if the fund should be wound-up.
Hipgnosis said: ‘Shareholders have told the board that the call option constitutes a material conflict of interest for the investment adviser and acts as a significant deterrent to any third-party potential offerors who might seek to acquire the company or its assets.
‘The board believes that the investment adviser’s call option therefore depresses the potential value of the company by limiting certain possible opportunities for shareholder value creation.’
It is therefore trying to encourage a sale to protect its assets from falling into HSM’s hands and investors nursing heavy losses.
Shareholders have told the board that the call option constitutes a material conflict of interest for the investment adviser and acts as a significant deterrent to any third-party potential offerors
Hipgnosis said the £20million offer could lure potential bidders by providing ‘significant protection’ against their due diligence and acquisition costs, and ‘ensure that they are not deterred’ from making an offer ‘as a result of the terms of the Investment Adviser’s Call Option’.
It said: ‘The proposal will provide greater potential opportunities to maximise value for Shareholders.
‘Specifically in relation to the proposal, the newly constituted board has consulted with several of the company’s largest shareholders, holding in aggregate more than 35 per cent of the issued share capital and all whom have indicated their support for the proposal.
‘The strategic review is ongoing, and the board is not actively seeking one or more potential offers for the company.’
Investors will vote on the proposal at an extraordinary general meeting.
Chair Robert Naylor added: ‘Investors in Hipgnosis Songs Fund overwhelmingly voted for change when they rejected the continuation of the company and the proposed sale of certain music assets.
‘From our shareholder consultation, core to the requirement for change is addressing the call option held by our investment adviser, Hipgnosis Songs Management.
‘This not only acts as a structural conflict between the interests of our shareholders and the investment adviser, but also creates a significant deterrent to potential bidders for the company’s assets thereby depressing the value of the company.
‘It is against this backdrop that we are proposing to change our articles to allow potential bidders to put forward their proposals for the company’s assets, with significant cost protection, if supported by a board recommendation to shareholders.
‘We are pleased, having discussed this proposal with many of our largest shareholders, that they are supportive of the board’s efforts to unlock the full value from the company’s assets.
‘The newly constituted board believes it is essential to try to level the playing field so shareholder value can be maximised.’