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Hipgnosis Songs Fund (HSF)’s board is having a difficult time of issues. That’s largely down to 2 elements linked to the UK-listed fund’s unbiased valuer: New York-headquartered Citrin Cooperman.
Firstly, in Citrin Cooperman’s eyes, HSF’s belongings (as of end of March this 12 months) carried an operative NAV (Internet Asset Worth) of USD $2.240 billion. Proper now, HSF’s market cap sits at about half the scale of that determine.
Secondly, HSF up to date buyers earlier this week with the deflating information that Citrin Cooperman had unexpectedly corrected, by a major margin, its expectation of the cash coming to HSF on account of ‘CRB III’ in the US – down from $21.7 million to $9.9 million.
The knock-on impact of Citrin Cooperman’s mathematical adjustment? HSF telling investors that it’ll now not be capable to ship their anticipated interim dividend later this month.
In the present day (October 19), Hipgnosis Songs Fund’s board informed shareholders that it has now begun a ‘Strategic Evaluate’ of HSF, together with, amongst different issues, “a evaluate of the longer term administration preparations of the corporate”.
HSF’s Strategic Evaluate discover partly focuses on Hipgnosis Track Administration (HSM), the agency co-owned by Hipgnosis Songs Fund founder, Merck Mercuriadis, which has previously acquired copyrights on behalf of two funds: (i) The publicly-listed HSF, and (ii) The Blackstone-backed personal fund, Hipgnosis Songs Capital (HSC). (Blackstone can be an investor in HSM.)
For a while now, MBW has reported that sources near this triumvirate of Hipgnosis corporations have knowledgeable us of one thing vital: HSM, we’d heard, has some sort of first-refusal clause in its contract with HSF which implies that, ought to the general public fund ever terminate HSM as its funding adviser, HSM might purchase HSF’s belongings (utilizing, for instance, capital from HSC or from elsewhere).
In the present day, we’ve had this truth confirmed, publicly, by Hipgnosis Songs Fund itself.
Throughout the announcement of its Strategic Evaluate being undertaken, HSF revealed the next:
“The [HSF] Board has requested the Funding Adviser [i.e. HSM] to take away the clause within the Funding Advisory Settlement associated to the decision possibility entitling it to accumulate the Firm’s portfolio on termination of its contract, which the Funding Adviser has declined to simply accept.”
So there you might have it: HSF has formally confirmed to its buyers that Merck Mercuriadis and HSM do certainly have an ongoing “name possibility” to accumulate the belongings of Hipgnosis Songs Fund ought to HSF terminate the contract of HSM as its funding adviser.
“[HSM has a] name possibility entitling it to accumulate [HSF’s] portfolio on termination of its contract…”
Hipgnosis Songs Fund affirmation in the present day (October 19)
A “name possibility”, for these not fluent in finance-speak, is an settlement that sees a possible purchaser (on this case HSM) in a position to acquire assets at a previously-specified price from a possible vendor (on this case HSF).
The Hipgnosis Songs Fund board simply requested Merck Mercuriadis to surrender this clause. He mentioned no.
Mercuriadis’s choice there could have one thing to do with the very fact he (as head of HSM) has already just lately agreed to concessions that make it much less arduous for HSF to separate with HSM as its funding adviser sooner or later.
Late final month, confirming the resignation of current Hipgnosis Songs Fund Chairman Andrew Sutch, HSF’s board revealed that it had carried out some key amendments inside its ‘Funding Advisory Settlement’ (IAA) with HSM.
These agreements would give HSM a 12-month discover interval as HSF’s funding adviser ought to the IAA be terminated at any level following subsequent Thursday’s (October 26) scheduled HSF ‘continuation vote’.
As well as, if HSF’s share value stands at a mean low cost to ‘operative NAV’ of 10% or extra throughout the month of January 2025, the HSF board says it intends to serve discover to terminate the IAA with HSM.
“We proceed to consider that HSM is uniquely positioned to ship worth to [HSF] shareholders on account of our deep relationship with the songwriters that make up {the catalogue} and our music administration experience.”
Hipgnosis Track Administration spokesperson
Nonetheless, HSF’s board has additionally given itself the liberty to un-terminate the IAA throughout the complete discover interval that may observe this state of affairs (e.g. if HSF’s board serves 12-month discover on HSM on the finish of January 2025, it might have till the tip of January 2026 to withdraw its termination choice).
In its ‘Strategic Evaluate’ announcement in the present day, Hipgnosis Songs Fund’s board mentioned that it had already “thought of serving discover on [HSM] to terminate the Funding Advisory Settlement [with HSF]”.
Nonetheless, it “concluded that it’s not presently in shareholders’ pursuits to take action, as it might be an occasion of default underneath [HSF’s] Revolving Credit score Facility if the Funding Advisory Settlement terminates in circumstances the place a brand new funding adviser has not been permitted by lenders”.
In an announcement to media in the present day following the ‘Strategic Evaluate’ announcement from Hipgnosis Songs Fund, a spokesperson for Hipgnosis Track Administration mentioned: “‘We absolutely recognise that the [HSF] Board must act as they see match.
“We proceed to consider that HSM is uniquely positioned to ship worth to [HSF] shareholders on account of our deep relationship with the songwriters that make up {the catalogue} and our music administration experience. We intend to proceed to exhibit this by our actions.”
Subsequent Thursday (October 26), at two essential conferences, Hipgnosis Songs Fund shareholders are anticipated to vote on a pair of key selections:
- (i) A ‘continuation vote’ as as to whether to maintain Hipgnosis Songs Fund a UK-listed firm in its current type; and
- (ii) Whether or not or to not settle for or reject a proposed $440 million supply from Hipgnosis Songs Capital (by way of Hipgnosis Track Administration) to accumulate a portion of HSF’s portfolio.
Hipgnosis Songs Fund’s board in the present day advisable, whereas asserting its Strategic Evaluate, that shareholders vote in favor of the ‘continuation vote’, suggesting it was “in shareholders’ curiosity to have a Strategic Evaluate with the widest array of choices for the Firm to think about and to determine modifications that can concentrate on recovering and delivering improved shareholder worth”.
Others take a special view.
Activist HSF shareholder, Asset Worth Traders (AVI), earlier this week inspired fellow HSF shareholders to vote towards subsequent week’s ‘continuation vote’. That’s a suggestion that has since been whipped up and expanded upon by numerous segments of the UK monetary press.
This morning, for instance, The Telegraph’s enterprise pages ran an op/ed encouraging HSF shareholders to “vote for change”, summing up its view of HSF underneath the headline: ‘A group of fantastic belongings trapped inside a poorly managed fund.’
That’s a headline that some will see as calling into query Hipgnosis Track Administration’s competence as an funding adviser.
What it chooses to not acknowledge, after all, is that it was really HSM – i.e. Merck Mercuriadis – who acquired that “assortment of fantastic belongings” for Hipgnosis Songs Fund within the first place.Music Enterprise Worldwide
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