Hipgnosis Stock Jumps 30.5% Following Concord Buyout Proposal — Board Chair Encourages ‘An Orderly Termination of the Investment Advisory Agreement’

Hipgnosis Songs Fund slashes valuation
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Hipgnosis Songs Fund slashes valuation
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Photo Credit: Hipgnosis Songs Fund

Hipgnosis Songs Fund (HSF) shares surged by more than 30 percent following the announcement of Concord’s $1.4 billion all-cash buyout offer.

We covered that offer, already approved by the companies’ respective boards, in detail immediately after its public disclosure late last night. The proposed selloff has arrived about one week before the deadline for the songs fund’s board to present a formal plan for the future.

For background, the underlying process was set in motion this past October, when fed-up shareholders voted not only against selling a portion of HSF’s holdings to a different Hipgnosis entity, but against the publicly traded fund’s continuation.

In brief – DMN has followed the Hipgnosis saga every step of the way, with an in-depth summary available here – HSF’s credit line has long been maxed out, new deals have been halted for the same reason, and the entity’s sagging stock price has prevented the issuance of new shares.

Furthermore, the allegedly restrictive terms of HSF’s “investment advisory” agreement with Hipgnosis Song Management (a partnership between Merck Mercuriadis and Blackstone) have also irked shareholders, to put it mildly. Among other things, Hipgnosis Song Management (HSM) possesses a “call option” that affords it the right to swoop in and make an offer for HSF’s IP in several instances.

(Adding another layer of complexity to the situation are issues with HSF’s valuation as well as the lawsuit levied by the liquidators of a defunct Hipgnosis operation. The convoluted Hipgnosis v. Hipgnosis courtroom confrontation should be kept front of mind amid the potential HSF sale.)

Said call option and adjacent factors have allegedly dissuaded third parties from exploring HSF buyouts – so much so that the songs fund’s revamped board, with the support of shareholders, offered to cover prospective purchasers’ due diligence costs.

This two-month-old plan, aided, of course, by HSF’s impressive collection of music IP, has evidently produced the desired result. Notwithstanding the aforementioned call option (and uncertainty as to whether Concord’s proposal will ultimately close), the market has responded accordingly.

During today’s trading, Hipgnosis Songs Fund stock (LON: SONG) surged to a day-end price, $1.14 (92 pence) per share, not seen since 2022. Despite reflecting a 30.5 percent improvement, though, the figure is well beneath the $1.49 (£1.20) or so that SONG cracked at its peak in 2021.

Regarding where SONG goes from here, all eyes are now on Hipgnosis Song Management, which HSF board chair Robert Naylor has encouraged “to agree [to] an orderly termination of the Investment Advisory Agreement,” including the call option.

“We would now encourage Hipgnosis Song Management, the Company’s Investment Adviser[,] and Blackstone, which is HSM’s majority owner, through funds they manage and/or advise, to agree [to] an orderly termination of the Investment Advisory Agreement,” communicated Naylor. “This would enable the payment of a larger consideration under the agreed transaction with Concord and bring to an end a period of uncertainty for all Hipgnosis stakeholders.”

The description of the deal proposed by Concord and HSF, which are looking to wrap the transaction via a “Court-sanctioned scheme of arrangement,” also mentions a $25 million “aggregate additional consideration” payable to shareholders if the investment advisory agreement is nixed at least five days before the appropriate hearing. Any sum owed to HSM under the termination would be subtracted from the $25 million.

Nevertheless, evidence suggests that there’s a small chance of HSM throwing in the towel, and in light of this newest twist, it’ll be worth closely monitoring the episode in the coming weeks.