Hipgnosis Song Management Is ‘Fully Resolved to Protect’ Its Investment Advisory Agreement Rights As HSF Takeover Battle Heats Up

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After Blackstone proposed an offer for Hipgnosis Songs Fund, Hipgnosis Song Management is making clear that it’s ‘fully resolved to protect’ the rights (including a call option) afforded under its investment advisory agreement. Photo Credit: Ruthson Zimmerman

Over the weekend, Blackstone proposed a $1.5 billion buyout of Hipgnosis Songs Fund (LON: SONG), topping Concord’s $1.4 billion offer. Now, with SONG stakeholders anticipating further bids, the publicly traded fund’s “investment adviser,” Hipgnosis Song Management (HSM), has threatened to “fully protect” its contractual rights.

This newest twist in the Hipgnosis saga came to light just moments ago, in a formal release sent to DMN by HSM. We’ve covered the back-and-forth episode in detail, but the many moving parts involved render a quick refresher helpful on multiple levels.

As mentioned, Hipgnosis Song Management is the investment adviser of the publicly traded Hipgnosis Songs Fund. The latter owns stakes in an array of catalogs (Shakira, the Red Hot Chili Peppers, Barry Manilow, and an abundance of others) and is allegedly bound by the terms of an underlying investment advisory agreement with HSM.

HSM, like a different entity called Hipgnosis Songs Capital, is partially owned by Merck Mercuriadis and majority owned by Blackstone. One of the clauses in the aforesaid investment advisory pact, a “call option,” would enable HSM to swoop in and acquire the entirety of HSF’s holdings in several situations – including if it’s booted as investment adviser.

In brief, that call option proved a key concern for HSF shareholders because it allegedly dissuaded would-be buyers from coming to the table. HSF’s revamped board, with the blessing of investors, then sought to entice prospective purchasers to explore a deal by covering millions in due diligence costs.

Tying this pertinent background information to the present, Concord’s proposal was over the weekend bested by a possible superior bid from Blackstone, as highlighted.

HSF’s board promptly made clear plans to recommend shareholders accept should an official bid come through, and SONG shot up to a price not seen since 2022.

“There can be no certainty that a firm offer will be made for the Company by Blackstone,” HSF’s board spelled out, “nor as to the terms of any such offer. Accordingly, shareholders are advised to take no action at this time with regard to the approach by Blackstone.”

In the approximately 600-word follow-up put out this morning and attributed to a company spokesman, Hipgnosis Song Management explored its view of the HSF investment advisory agreement specifically when it comes to Concord’s offer.

“HSM has repeatedly been blamed for many issues affecting the Company which were not HSM’s responsibility under the terms of the IAA [investment advisory agreement],” HSM indicated. “We have previously sought to address this in private with the Company’s Board as we felt it was in the best interests of shareholders to minimize public commentary. Given recent developments we feel it is now important to make our position clear.

“Based on extensive legal advice we are confident that the Company has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the IAA. HSM has explained this in detailed legal correspondence with the Company. The Company has not responded to HSM on the legal arguments it has presented,” HSM proceeded.

Needless to say, these remarks appear to underscore HSM’s position that it will have the final say (and bid) regarding an HSF acquisition.

Of course, that idea is decidedly important given the value of the involved IP, the outright bid that Blackstone has already floated, and the adjacent potential for additional offers. As Numis pointed out in a comprehensive analysis emailed to DMN today, SONG’s already trading at a premium even to Blackstone’s $1.24-per-share offer, suggesting that further bids are anticipated.

“HSM will vigorously protect its interests should the Company purport to terminate the IAA,” Hipgnosis Song Management emphasized. “We will use all means necessary to defend our contractual position and interests. …  To be clear, were the Company to purport to terminate the IAA and/or hand HSM’s responsibilities under the IAA to a third party, HSM and its majority shareholder are fully resolved to protect all of our rights under the IAA, including the right to exercise the call option to acquire the Company’s assets.”

While time will reveal exactly how the situation unfolds, worth mentioning in conclusion is that Blackstone’s offer “is independent of” Mercuriadis, according to PE Hub Europe. In February, the veteran music manager stepped down as HSM’s CEO.