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Major shareholders in Hipgnosis Songs Fund are preparing to block the sale of a $440mn music rights portfolio to a private sister fund owned by Blackstone as the UK listed business continues to fight for survival.
The Financial Times has learned that there is significant investor opposition to the deal, which was proposed by the company’s board as a way to pay off debt and narrow the large discount between its share price and net asset value.
One top 10 investor told the FT that the price being offered by Blackstone — which also co-owns the company that manages Hipgnosis — was not high enough. “Its all about price — if it was 30 per cent higher then it might make sense. We don’t really want to be parted from the assets.”
Hipgnosis has proposed the sale of about a fifth of its music portfolio to fund a share buyback programme and reduce debt.
The investor added that shareholders were also unhappy about a perceived lack of transparency over the costs of the deal, as well as the tax implications and the agreement that accrued income since the start of the year would go to Blackstone as part of the transaction.
Another person with knowledge of the voting intentions of other large investors said that there was opposition to the deal as structured: “I’d be stunned if it doesn’t get voted down.”
He added that the price achieved in the sale of another UK listed music group, Round Hill Music Royalty Fund, which owns rights to artists such as Bruno Mars, for $469mn had also affected sentiment.
The Round Hill deal was struck at a discount to net asset value of 11.5 per cent, compared with a discount of more than 24 per cent in the sale to Blackstone when including costs, tax and lost income.
“On a headline basis it looks like [Round Hill shareholders] are taking a much smaller haircut than Hipgnosis shareholders,” the person said.
“Shareholders are angry about the process. The process seems very heavily favoured towards Blackstone,” said Stifel analyst Sachin Saggar.
“People feel a bit insulted about the way it’s been dressed up. Optically, I don’t know what Blackstone was thinking.”
Hipgnosis Songs has separately agreed to sell a portfolio of non-core song rights for $25mn, although it did not disclose the buyer. The FT has learned that the company is in talks to sell the portfolio back to Kobalt, the US business it bought them from originally.
Investors have been unhappy about the share price performance of the Hipgnosis Songs Fund, which trades at about half the value of its net assets.
However, shareholders also said that they may still back the company in a continuation vote that will decide its future in October. One pointed out that a vote against could lead to a fire sale of assets at lower valuations. “This is still a fantastic portfolio with strong tailwinds behind it. There is still a long runway for growth.”
Andrew Sutch, the chair of the company, has also said that he will retire. This, alongside the departure of another non-executive, has been seen as a concession to shareholders who are unhappy with management.
Saggar said he expected most investors to vote in favour of continuing the fund.
Shareholders have yet to vote on the Blackstone deal, which means there is no certainty over whether there is enough dissent to block it, or the company’s continuation.
Other shareholders told the FT that they had yet to decide. The company’s management is talking to investors to boost support ahead of the votes.
There is also a provision for other bidders to make a better offer than Blackstone. But analysts and potential buyers view this as unlikely.
“There are very specific circumstances with Hipgnosis, and the way potential sales are being structured makes them unattractive”, said a senior executive at a company that discussed buying song rights with Hipgnosis.
At the same time, the general backdrop for music copyright deals has deteriorated as interest rates have risen. Market participants said prices have fallen, with song copyrights now relatively less attractive to investors who can earn comparable returns from government bonds.
Read the full article here