Photo Credit: Hipgnosis Songs Fund
Hipgnosis Songs Fund (LON: SONG) is reportedly considering selling off “less attractive” catalogs in an attempt to improve its stock price and assuage investor concerns.
Word of Hipgnosis Songs Fund’s rumored catalog-sale plans just recently came to light in a report from the Financial Times, which last year published multiple pieces pertaining to the Merck Mercuriadis-led entity’s operational status. Not to be confused with Hipgnosis Song Management – the Blackstone-backed “investment adviser” of the publicly traded fund – HSF has for some time been unable to raise new capital via share issuances or, in turn, scoop up additional catalogs.
That’s because the company’s shares are trading at a substantial discount to the value of its owned music assets – at least according to the much-debated valuation assigned by a “catalog appraiser.” In coordination with a heavy dose of debt, this point has for a while prevented HSF from closing fresh deals.
Of course, Hipgnosis Songs Fund – which is set to release its annual earnings report tomorrow – did however scoop up all manner of catalogs before encountering the obstacles, dropping north of $1 billion during the 2021 fiscal year alone and inking deals with Barry Manilow, Jimmy Iovine, and Shakira, to name just a few.
2022 also saw the company repurchase a substantial number of shares, and it bears highlighting that some analysts have expressed relatively optimistic views of HSF’s positioning and path forward. Nevertheless, as mentioned at the outset, certain investors are reportedly pushing for the sale of select assets to fuel a continued share buyback effort.
According to the FT, “several top investors” would like HSF “to sell off non-core assets” – with a professional associated with an investment firm that holds 4.9 percent of Hipgnosis Songs Fund rather directly urging higher-ups “‘to dispose of less attractive catalogues in the portfolio.’”
While this individual opted not to identify which catalog(s) he believes it makes sense to divest, he would “‘be disappointed if they were selling the family silver to buy shares.’”
In September of 2020, Hipgnosis acquired Big Deal Music Group – and the publisher’s 4,400-track catalog, in terms of areas to trim (without sacrificing ultra-valuable holdings) should execs opt for a sale. Additionally, November of 2020 brought with it a multifaceted $323 million, 42-catalog investment for Hipgnosis, execs from which have per the FT spoken to at least one prospective bidder about a possible selloff deal.
Needless to say, though, there are questions surrounding this suggested plan of action – particularly relating to the exact price that Hipgnosis’ “less attractive” IP would fetch against the backdrop of rising rates and related economic factors.
Moreover, a different investor, affiliated this time with an entity in possession of a 6.2 percent HSF stake, touched upon the potential pitfalls of slicing up the fund’s holdings and said he’d “‘prefer them to carry on and let revenues grow and eventually the valuation should reflect the performance of the portfolio.’”