Having grappled with a less-than-ideal stock price for some time, Hipgnosis Songs Fund (LON: SONG) has teed up the sale of nearly $500 million worth of catalogs to fund an expanded share-buyback program and pay down debt.
Hipgnosis Songs Fund formally announced its divestment plans today, and as proposed, the deal would see the business cash out of IP tied to Shakira, Barry Manilow, L.A. Reid, and more. For background, July had brought a fiscal-year revenue decrease for HSF, with execs acknowledging that the then-share price didn’t “reflect the success of our investment strategy.”
Simultaneously, several of the Fund’s largest shareholders advocated for a partial catalog selloff. Hipgnosis Songs Fund has for a while been trading at a significant discount to the (much-debated) “net asset value” assigned to the involved IP by an ostensibly independent appraiser, thereby barring the further issuance of shares. And a maxed-out credit line has been preventing the business from closing new deals.
But HSF had embarked on a well-documented buying spree from its 2018 founding until about 2021, scooping up the rights to a multitude of high-profile catalogs. Although the sizable debt tranche has made fresh plays impossible in the interim for the Fund itself, once again, its Blackstone-powered “investment adviser,” Hipgnosis Song Management, has gone ahead and bought the work of Justin Bieber and others in 2023.
It’s a third Hipgnosis entity, however, that’s poised to swoop in and nab the initially mentioned catalogs. Hipgnosis Songs Capital (HSC), which is described by the Fund as “a partnership between Hipgnosis Song Management and funds managed and/or advised by Blackstone,” is expected to spend a cool $440 million on 29 catalogs.
Hipgnosis Songs Fund Would Sell 29 Catalogs for $440 Million Under the Deal – L.A. Reid, Nelly, Barry Manilow, and More
As proposed, the $440 million deal would see HSC assume ownership of the following 29 catalogs from Hipgnosis Songs Fund:
- Poo Bear
- Brian Kennedy
- Brian Kennedy (writer’s share)
- Happy Perez
- Jon Bellion
- Martin Bresso
- Ian Kirkpatrick
- L.A. Reid
- The Kaiser Chiefs
- Ari Levine
- Steve Robson
- Ed Drewett
- Joel Little
- Bob Rock
- Rico Love
- Sean Garrett
- Elliot Lurie
- Fraser T. Smith
- Terius Gesteelde-Diamant
- The Lyric catalog
- Eric Stewart
- Brian Higgins
- Barry Manilow
- Tricky Stewart (masters)
- Rick James (HSF only owned a 50 percent stake)
The $440 Million Sale Is Expected to Close in November – Unless HSF Receives a Better Offer
Hipgnosis Songs Fund investors are expected to vote on the sale plan at an annual meeting and an extraordinary meeting, both of which are expected to take place on October 25th. That said, the Fund will for 40 days from today be accepting competing offers for the above-noted bodies of work. Should one of these offers prove more lucrative than the $440 million to be put up by HSC, the latter would have “the right to match.”
Execs are scheduled to reveal on October 24th whether they received a superior offer – though any such offer would delay until November 30th (at the latest) the annual and extraordinary meetings.
Additionally, Hipgnosis Songs Fund, which has habitually paid “investment adviser” fees to HSM notwithstanding an absence of actual deals, would owe HSC a cool $6.6 million “termination fee” if it opted to accept a preferable offer and the latter entity didn’t match it, according to the regulatory document.
(Assuming the sale wraps, HSF disclosed the terms of a retooled HSM investment-adviser agreement, available on page 18 of the appropriate filing, that would potentially reduce fee tiers, depending upon the business’s market cap.)
Finally, in terms of pertinent selloff details, Hipgnosis Songs Fund communicated that the remaining $25 million (on top of the previously noted $440 million) would derive from the sale, seemingly to an as-yet-unnamed buyer besides HSC, of “non-core” assets first obtained from the inaugural fund of Kobalt.
Execs Intend to Use the Proceeds to Reduce Debt and Buy Back Shares
Per the regulatory disclosure, HSF will use the sale’s proceeds to bankroll an up to $180 million share-buyback program and to pay down its revolving credit facility by a quarter of a billion dollars.
Addressing today’s news with the better part of 600 words, Hipgnosis Song Management CEO Merck Mercuriadis (who, along with other HSM employees, owns a piece of “the share capital of Hipgnosis Songs Capital,” the filing reiterates) said he’s “delighted” with the proposed agreement.
“I’m delighted that through this transaction with Hipgnosis Songs Capital,” Mercuriadis relayed in part, “not only are we able to execute the strategy of share buy backs and reducing leverage but also give clear transactional evidence, alongside other recent transactions in the market, of the current realisable value of the Company’s catalogues to help investors understand and have confidence in the Company’s asset value.
“The purchase price of the sale of catalogues to Hipgnosis Songs Capital realises a total return of 44%, which validates our investment strategy despite the current economic challenges,” he continued.