October 26, 2023 – LONDON (CelebrityAccess) – The UK-based company, Hipgnosis Songs Fund (HSF) can hear the deafeningly sound of silence as shareholders of the company sat down today (October 26) and have voted against the board’s continuation as an investment trust and blocked the sale of a multi-million deal to offload some of its music catalogs. Musicweek.com reports the vote was required under regulatory conditions for investment trusts, with 83.2% of shareholders voting against it at today’s Annual General Meeting (AGM) and Extraordinary General Meeting (EGM).
In a statement to the Stock Exchange, HSF’s board said:
As a result of Resolution 12 (the “Continuation Resolution”) not passing, the board will, in accordance with the company’s prospectus, put forward proposals for the reconstruction, reorganization or winding-up of the company to shareholders for their approval within six months following the date of today’s AGM. These proposals may or may not involve winding up the company or liquidating all or part of the company’s existing portfolio of investments.
Sylvia Coleman, senior independent director of HSF, said: “The board and the investment adviser have each engaged widely with investors over recent months. 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. The 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.”
But I digress; let’s review what led up to the tumultuous turnaround at the investment trust, established by former Guns N’ Roses manager Merck Mercuriadis in 2018. It has been a critical player in the sale of artists’ catalogs that have gained traction in the past year, buying up the rights to songs by artists such as Neil Young, Fleetwood Mac, Shakira, Red Hot Chili Peppers, and many more.
September 14: HSF announced plans to sell 29 of its acquired music catalogs to fund a share buyback program and pay down debt to bolster the company’s share price and boost its cash flow. The company delivered a proposal to sell almost a fifth of its music catalogs to a fund managed or advised by Blackstone at a deep discount – a sale price 17.5% below the catalog’s most recent valuation, to be exact.
The proposed sale raised red flags over the fund’s management, given that the potential buyer was HSF’s Blackstone-backed sister fund – Hipgnosis Songs Capital (HSC). The potential transaction is being managed for both HSF and HSC by two separate teams within their mutual investment advisor, Hipgnosis Song Management (HSM), which is run and part-owned by Mercuriadis.
According to HSF, the deal worth $440 million includes the catalogs of artists such as Nelly, L.A. Reid, Kaiser Chiefs, and Sean Garrett, among others. The proceeds from the sale will be used to buy back up to $180 million worth of shares and to make payments on the company’s revolving credit facility to the tune of $250 million.
While HSF shareholders had to consider the $440M offer from HSC to buy the 29 catalogs, other NON-Hipgnosis companies were also invited to bid for the same portfolio. MusicBusinessWorldwide.com reports that a “go-shop” clause in the HSF/HSC proposal enables the HSF board to consider these bids until 11:59 pm on October 23. However, any superior offer would have to exceed the aggregate cash net proceeds reaching HSF’s reserves if HSC’s $440M offer is accepted.
September 28- 29: HSF announced the continuation vote would take place today (October 26) at the company’s AGM, with shareholders set to vote on whether to keep the company going as a closed-ended investment entity, meaning a publicly-traded bundle of music rights.
In addition, HSF announced the firm’s Chairman of the Board since 2018, Andrew Sutch, 73, was stepping down as both HSF Board Chair and Director of the company and Andrew Wilkinson, 72, had informed the HSF Board of his intention to retire as Board Director, reducing the number of the Board to five total.
October 16: We (CelebrityAccess.com) reported that the Board of HSF warned investors that quarterly dividends would be negatively impacted following the US Copyright Royalty’s board’s ruling on retroactive royalty payments. The company abandoned plans to pay a dividend after UK music rights valuer Citrin Cooperman dropped the amount Hipgnosis can expect to receive in royalties from music played between 2018 – 2022. The amount went from $21.7M to $9.9M, resulting in a $11.8M price fall.
October 16: A shareholder of HSF – Asset Value Investors (AVI) sent a letter to shareholders saying it would vote against the proposed sale of some of its music catalogs to the company backed by private equity firm Blackstone. Reuters.com reports AVI asked fellow investors to do the same thing, citing the “uncompetitive nature” of the process and lack of an “up-to-date valuation” that would make the proposed sale not the best deal for them. AVI manages a 5% stake in the company on behalf of its clients.
October 20: We (CelebrityAccess.com) reported that HSF announced the launch of a strategic review in an attempt to rally flagging investor sentiment. The review announcement came amid a pivotal moment as the shareholder vote (which occurred today) was looming.
HSF revealed it had weighed cutting ties with the Mercuriadis-led HSM but opted not to, concluding the move would lead to a default of debt covenants. The move would also allow HSM to exercise a clause enabling it to acquire HSF’s portfolio upon termination of its contract. According to HSF, the company’s board asked HSM to waive that clause, but the investment advisor refused.
The HSF Board said they will continue to vote in favor of continuing the trust and support the sale of $440M in assets to HSC. The board also announced that they have launched a search for a new chair and hired an executive search firm to identify a potential candidate.
October 24: HSF did not receive an offer superior to its original $440m for its music catalogs.
October 25: HSF’s two Board Directors, Wilkinson and Paul Burger, resigned ahead of the ASM meeting, and Sutch advised he would leave before the next annual meeting.
October 26: At HSF’s annual meeting of shareholders in London, a majority of investors in HSF have demanded a new board to make changes to the company, and that includes not selling off part of its 65,000-song catalog, which includes songs from Shakira, Neil Young, Journey and many more. The shareholders voted NO on a resolution to “continue running the fund in its current form” and rejected a plan to sell the package of 29 song catalogs to HSC.
BillboardPro.com reports the vote signifies the start of a 6-month countdown for the board to devise a plan for the “reconstruction, reorganization or winding-up of the company,” which reflects exasperation with the company by HSF’s shareholders.
Out of HSF’s shareholder frustration – they want new leadership on the board with total transparency moving forward. The board has announced it intends to appoint Cindy Rampersaud, an independent non-executive director, to replace Wilkinson as Chair of the audit and risk management committees.
Following the vote, Mercuriadis said: “Today’s Hipgnosis Songs Fund AGM marks an opportunity to reset and focus on the future. Our conversations with shareholders have revealed a consensus that they are enthusiastic about the quality of the company’s iconic portfolio of songs. However, it is also clear that they are asking for change, and we respect that feedback. Hipgnosis Song Management’s new management team and I have already started taking the relevant necessary action to meet the expectations of shareholders.
“Our commitment to the company’s shareholders remains absolute, and we look forward to working with a new chair and reconstituted board during this period to ensure that the Hipgnosis Songs Fund delivers for its shareholders. During this process, shareholders can be certain that Hipgnosis Song Management will continue to manage the songs with the greatest duty of care, as always.
“Finally, I would like to thank Andrew Sutch, Andrew Wilkinson and Paul Burger for their important contributions to the company over the last almost six years.”
Billboard.com reports that AVI’s Head of Research, Tom Treanor, wrote:
“The company has a bright future. And that may well be with the current manager on revised terms should a new board decide so following consultations with shareholders. But we do, however, strongly believe that a reset is urgently required.”
Founded in 2018 by Merck Mercuriadis and Nile Rodgers, Hipgnosis is a IP investment and song management venture based in the British island Gurensey, a well known tax haven.
An Atlantic Canadian, Mercuriadis began his career in Toronto in the early ‘80s as an A&R and marketing director at Virgin Records of Canada. He went on to serve from 1986 to 2007, as director and CEO of the Sanctuary Group, a leading UK-based management company, independent record label, merchandise company, and booking agency headquartered in London with offices in New York, and Los Angeles.
Despite a recorded music catalog of more than 150,000 tracks and considerable success with its management roster that included Iron Maiden, Beyoncé, Guns N’ Roses, Nile Rodgers, Elton John, Morrissey, Pet Shop Boys, Macy Gray, Mary J. Blige, and Jane’s Addiction, Sanctuary Group struggled against a global music meltdown, and was bought by Universal Music Group for £44.5 million in 2007.
