Yesterday, Concord increased its bid for Hipgnosis Songs Fund (HSF) by nearly eight percent, topping Blackstone’s previous offer. Now, the latter entity, which holds a majority stake in Hipgnosis Song Management (HSM), is “strongly” urging HSF investors “to take no action” on the newest buyout proposal.
Blackstone representatives reached out today with the cryptic warning about exploring the superior buyout offer. With a main body spanning just over 60 words, the corresponding release also makes clear that Blackstone “is considering its options.”
“Blackstone strongly advises Hipgnosis shareholders to take no action and is considering its options,” the relevant text reads. “A further announcement will be made in due course.”
(Rendering the inherently involved situation more complicated yet, this release and others from Blackstone as well as HSM are still being published alongside announcements from HSF on the songs fund’s website and London Stock Exchange page.)
For background, Blackstone-powered HSM as part of its investment advisory agreement with HSF possesses a call option that ostensibly enables it to swoop in and acquire the entirety of the songs fund’s assets. As the investment advisor sees it, that call option is exercisable in several instances – including in the event that it’s cut loose from the underlying advisory pact.
Consequently, Blackstone opted against immediately pursuing the call option and instead topped Concord’s first offer with a traditional bid. Soon thereafter, though, HSM emphasized that in the event HSF booted it from or replaced it under the investment advisory agreement, it wouldn’t hesitate to utilize the call option.
“To be clear, were the Company to purport to terminate the IAA [investment advisory agreement] and/or hand HSM’s responsibilities under the IAA to a third party,” Hipgnosis Song Management’s message indicates, “HSM and its majority shareholder [Blackstone] 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.”
But investors, far from appearing worried about the call option and the possibility of a protracted legal battle, are rallying behind HSF stock (LON: SONG) and the improved offer from Concord. The revamped HSF board itself, which has directed ample criticism towards Hipgnosis Song Management, yesterday recommended shareholders take steps to approve the latest bid from Concord.
At the time of this writing, SONG was trading for $1.29 (£1.04), reflecting a roughly two percent gain on the day and a close to 42 percent hike across the past two weeks. Of course, that figure is above the $1.25 that Concord would pay under its newest offer, implying that shareholders are anticipating additional bids.
Meanwhile, in a separate release put out today, HSF reiterated that a number of sizable stakeholders had agreed to vote in favor of Concord’s proposal.
Not standing idly by ahead of this vote, however, the prospective Hipgnosis Songs Fund purchaser is evidently moving to buy shares outright.
CCLA Investment Management, which holds 57.73 million HSF shares (worth approximately $75 million at the current stock price and exchange rate) and had agreed to back Concord’s proposal, has officially “entered into an unconditional agreement to sell its entire shareholding in Hipgnosis to Concord Bidco at a price of US$1.25 per share,” per the text.
That transaction is expected to wrap by Wednesday, May 8th, and logic suggests that similar deals might be announced in the near future. Moreover, J O Hambro Capital Management, another supporter of the Concord deal, relayed earlier this week that it’d sold off about 5.42 million of its 20.45 million shares, thereby decreasing the weight of its vote on the sale.
Bigger picture, it’ll be interesting to see exactly how HSM responds and precisely what Blackstone’s “further announcement” entails. Notwithstanding the multifaceted situation’s many moving parts, the available evidence points to a decidedly small chance of the entities’ throwing in the towel and allowing Concord’s purchase to close at once.
