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I have to be getting previous.
Understand how I do know? Pals of mine don’t ship me new music today. They only ship me viral movies.
At this time up to now, I’ve snickered, mesmerized, ooh, maybe 31 occasions at Democracy Manifest Man.
The opposite video hyperlink I’ve acquired? Robert Plant performing Stairway To Heaven, for the primary time in 16 years, within the comparatively teeny venue of Soho Farmhouse (UK).
The gang in that video absolutely is aware of, right down to their bones, that they need to be stood in hushed reverence. In any case, they could be witnessing the final ever time that King Zep, 75, belts out his most universally cherished music.
However are you aware what some individuals in that crowd do? They really sing alongside. Misplaced within the second, they tunelessly echo again Plant’s phrases, quite than basking in them. They will’t assist themselves.
Watching this tableau – individuals giddily parroting a scintillating refrain, irrespective of how inapposite doing so may appear in hindsight – jogged my memory just a little little bit of the music business and Merck Mercuriadis.
Over the previous month, I’ve listened to a number of, let’s say, Mercuriadis skeptics (he’s on numerous rivals’ dartboards, that man!).
Usually with some glee of their voices, these of us have daydreamed aloud how Hipgnosis Songs Fund‘s ‘continuation vote’ will grow to be the second their imaginary nemesis lastly will get nobbled.
“It’s the day the home of playing cards lastly falls down! The day the piper will get paid! The day Merck’s left ‘holding the bag’!” and many others.
Properly, as you in all probability know by now, that ‘continuation vote’ passed off yesterday morning in London (October 26).
It was anticipated {that a} cheap majority of Hipgnosis Songs Fund (HSF) shareholders, pissed off by the agency’s sagging share value and the shock current slashing of their interim dividend, would vote in opposition to continuation.
This, although, was a landslide: Round 83% of HSF stockholders opted to reject ‘continuation’ – whereas additionally voting to right away oust HSF’s already-exiting Chairman, Andrew Sutch.
The transfer has left the way forward for HSF hanging within the stability.
But removed from spelling the top of Merck Mercuriadis (and the Blackstone-backed funding adviser he leads, Hignosis Music Administration), Hipgnosis Songs Fund’s ‘discontinuation’ might but play proper into his palms.
In a second, I’m going to do a spot of my very own “giddy parroting”, by paraphrasing in textual content some conversations I’ve had (and never had) with individuals this previous fortnight about Mercuriadis and HSF, and their respective futures.
However for now, let’s hear from the person the entire business’s speaking about (once more!)… through an announcement that Mercuriadis issued within the wake of the discontinuation vote from HSF shareholders.
“[Yesterday’s] Hipgnosis Songs Fund AGM marks a chance to reset and deal with the longer term. Our conversations with shareholders have revealed a consensus that they’re enthusiastic in regards to the high quality of [HSF’s] iconic portfolio of songs.
“Nonetheless it’s also clear that they’re asking for change and we respect that suggestions. Hipgnosis Music Administration’s new administration workforce and I’ve already began taking the related essential motion to satisfy the expectations of shareholders.
“Our dedication to the Firm’s shareholders stays absolute and we stay up for working with a brand new Chair and reconstituted Board throughout this era to make sure that the Hipgnosis Songs Fund delivers for its shareholders. Throughout this course of, shareholders may be sure that Hipgnosis Music Administration will proceed to handle the Songs with the best responsibility of care as at all times.”
Mercuriadis additionally thanked Andrew Sutch, in addition to non-exec administrators, Andrew Wilkinson and Paul Burger – who each fell on their swords forward of yesterday’s vote – for his or her service.
So: what occurs now? Is Mercuriadis actually fried? And the way on earth can it’s doable, post-HSF’s discontinuation, that he’s left “holding all of the playing cards”?
To clarify, take pleasure in this author arguing with himself in eight simple steps…
Not the neatest begin to this dialog.
A ‘continuation vote’ – which all funding trusts on the London Inventory Change legally have to carry each 5 years – doesn’t imply the speedy finish of a fund. Nor does it imply the speedy finish of that fund’s relationship with its funding adviser.
Yesterday, in a notice to traders, JP Morgan’s Christopher Brown succinctly summarised what discontinuation really means for HSF:
“In accordance with [HSF’s] prospectus, the Board is now required to place ahead inside six months proposals for the reconstruction, reorganisation or winding-up of [HSF]. These proposals might or might not contain winding-up [HSF] or liquidating all or a part of the present portfolio of investments.”
In the interim, HSF is sustaining its funding adviser – Hipgnosis Music Administration (HSM) aka Merck Mercuriadis. In the meantime, yesterday HSF shareholders re-elected three of the corporate’s Board Administrators: Simon Holden, Sylvia Coleman and Cindy Rampersaud.
In order you learn this, HSF nonetheless has a board, and nonetheless has an funding adviser.
Essentially the most urgent concern of that board? Discovering a Chairman to interchange the now-ousted Andrew Sutch.
Rumors counsel {that a} probably candidate to fill these sneakers can be Rob Naylor, beforehand the Chairman of Spherical Hill’s UK royalty fund (which is able to shortly be the property of Concord).
Related: clearly, Hipgnosis Music Administration (aka Mercuriadis and his workforce) additionally counts Blackstone-backed Hipgnosis Music Capital (HSC) as a shopper.
So even when HSF did handle besides him out – which I doubt will occur, as I’m about to elucidate – Mercuriadis’s eggs aren’t multi functional basket anyway.
Do you not learn Music Business Worldwide?
Sure, to be clear, the Hipgnosis Songs Fund board can now flip round – as they’ve at all times been in a position to do – and fireplace Hipgnosis Music Administration as HSF’s adviser.
That’s unlikely, although not unimaginable, for a number of causes.
Earlier this month MBW reported that Merck Mercuriadis had agreed to new concessions in HSM’s contract with HSF.
Even so, if HSF now fires HSM as its adviser, contractually HSM has a minimal 12-month discover interval; HSF would additionally should pay HSM an extra penalty.
Each of these items (the discover and the penalty), relying on the share value, I hear, might add as much as someplace within the area of GBP £15 million to GBP £25 million.
After which, the killer element: As MBW reported last week, Hipgnosis Music Administration and Merck Mercuriadis have an unique ‘name choice’ in place to purchase the whole thing of HSF’s belongings if HSM is ever terminated as HSF’s funding adviser (aka: if Mercuriadis is fired).
I’ll dig deeper into the solidity of that ‘name choice’ – and why it issues greater than you would possibly initially admire – shortly.
A much bigger query for now: what does HSF firing HSM really achieve the listed firm within the brief time period? Aside from momentarily pumping some blood via the capillaries of HSF shareholders indignant in regards to the present inventory value?
As Mercuriadis mentioned in his assertion, HSF’s shareholders aren’t questioning the standard of the fund’s belongings – with stakes within the songbooks of Neil Younger, Shakira, Enrique Iglesias, 50 Cent, Lindsey Buckingham, Christine McVie, Jack Antonoff, Andrew Watt, and the Pink Scorching Chili Peppers, to call a handful.
Mercuaridis personally amassed this enviable portfolio for HSF, leaning on his distinctive contacts ebook. He did so throughout 5 years (2018-2022) when – apart from a really small circle of others (hello Larry!) – Mercuriadis’ non-major-music-company opponents have been hardly ever in a position to problem the scale of premium-level belongings that HSF swallowed up.
Sure, some will argue that Mercuriadis paid too excessive a a number of for sure belongings (whether or not newer catalogs or ‘classic’ catalogs).
However HSF shareholders clearly consider these catalogs have been value it: witness the actual fact they only rejected a $440 million supply from Blackstone/Hipgnosis Songs Capital (through Mercuriadis/HSM) for 29 of HSF’s catalogs… for a value that represented a 26% premium on the unique charge that Mercuriadis paid to accumulate them for HSF within the first place.
As well as, HSF’s top-line financials (earlier than focus shifted to the irritation of a halted October dividend and different board wobbles) look stable: In July, HSF introduced its strongest-ever annual fiscal outcomes, with like-for-like revenues up 10.9% YoY.
Final level: HSF shareholders will admire that, by firing Mercuriadis, they invite the surface chance of a ‘Taylor Swift disaster’ – i.e. songwriters with whom Mercuriadis has struck offers (from Neil Younger, to Chrissie Hynde, The-Dream, the Chili Peppers, Lindsey Buckingham, Nile Rodgers et al) going public with potential anger over HSF making an attempt to separate Mercuriadis from repping their belongings.
Inevitably, such a situation wouldn’t be nice information for HSF’s share value.
Sure. There may be actually a good accusation to be made at Mercuriadis about battle of curiosity.
Since Hipgnosis Music Administration started shopping for catalogs for Hipgnosis Songs Capital (i.e. with Blackstone’s money), HSF’s personal shopping for spree has floor to a halt.
To be clear: mentioned grinding to a halt has been attributable to HSF being “absolutely invested”. Whereas its shares commerce at a reduction the corporate is unable to increase extra cash to purchase stuff – and it’s prudently not seeking to additional develop its credit score facility to take action in a high-interest surroundings.
However even when HSF did have a stack of latest capital to spend, its HSM relationship is inarguably sophisticated by HSC’s presence. (See: the main points of this 20% agreement between HSF and HSC).
The HSF board (and plenty of shareholders) particularly requested for Blackstone to purchase catalogs from HSF to permit for share buybacks. However within the harsh gentle of post-discontinuation, they could not adore this complexity.
No, I doubt they are going to… primarily as a result of his ‘name choice’ leaves HSF susceptible to shedding capital progress, tied to streaming’s progress, that may come from belongings that the corporate itself acknowledges are very priceless.
Have you ever appeared into the finer particulars of Mercuriadis’ ‘name choice’? I’ve.
It dates again to the prospectus of Hipgnosis Songs Fund, earlier than HSF floated in 2018 and earlier than any public shareholders invested a bean within the firm.
Under is a abstract of the ‘name choice’, from that prospectus, in black and white.
Observe: “[An] unconditional proper exercisable at any time in the course of the interval of six months instantly following [HSM’s termination] to buy from the Fund… its portfolio of Songs (whether or not held immediately or not directly).”
Hipgnosis Music Administration (HSM) represents lots – as in, potential billions – of Blackstone {dollars} within the form of Hipgnosis Songs Capital (HSC).
Blackstone is strategically invested in Hipgnosis Music Administration too, owning just north of 50% of the funding advisory firm.
In order quickly because the HSF board fires Mercuriadis, you may guess he’ll simply come and purchase their belongings, in all probability utilizing Blackstone/HSC’s cash.
Or, if HSC for no matter purpose doesn’t have the urge for food for the deal, or is just prepared to part-fund it, Mercuriadis (and HSM) could be free to hunt one other third-party backer’s cash.
If the HSF board chooses not to fireside Mercuriadis, after all, the ‘name choice’ is not any risk to HSF. It stays in its field.
That is the place issues get enjoyable.
Let’s think about precisely what you simply described occurs for actual. The board sells off Hipgnosis Songs Fund both at a value that Hipgnosis Songs Capital/Blackstone is unwilling to match, or they one way or the other simply freeze out Merck Mercuriadis from the acquisition course of.
On this situation, let’s say Universal, Sony, or Warner turns into the proprietor of HSF.
What would these firms naturally do on day one of proudly owning HSF? They’d sack Merck and HSM. Goodnight Vienna!
Besides that sacking… would then set off HSM’s ‘name choice’… that means that Mercuriadis and Blackstone would be capable of purchase HSM’s belongings off the brand new proprietor… with out that new proprietor having the ability to cease it.
A supply beforehand concerned in HSF at a senior degree instructed MBW earlier this week: “When issues have been going nice, 5 or so years in the past, the [HSF] board waved Merck’s ‘name choice’ request via with out fuss.
“It’s laughable that the identical board requested him to spike the identical ‘name choice’ the opposite week – and hardly stunning he instructed them no method.”
“When issues have been going nice, 5 or so years in the past, the [HSF] board waved Merck’s ‘name choice’ request via with out fuss.”
MBW supply
Stated the identical supply: “Merck has at all times maintained that he made certain he crossed the t’s and dotted the i’s in order that when he instructed these songwriters he would symbolize their catalogs for the remainder of his life, he would.”
One other supply near Hipgnosis Songs Fund’s preliminary IPO in 2018 feedback, “Merck defined to shareholders at the start that if he was going to construct a multi-billion greenback fund, he’d have to navigate some very emotional discussions with songwriters. If he was going to accumulate catalogs from cultural giants like Neil Younger – and Neil Younger was the precise instance he used on the time – he’d should make a deal for his or her ‘metaphorical youngsters’.
“That was the justification for his ‘name choice’: To [buy catalogs] immediately from individuals like Neil Younger, Merck must look artists within the eye and promise them that he’d by no means have to surrender the administration of their songs, no matter whether or not the capital behind Hipgnosis ever modified.
“Shareholders agreed to Merck’s ‘name choice’ earlier than they ever invested a pound in Hipgnosis. It’s been within the firm’s prospectus spelled out since day one.”
I imply, sure, after all, they might at all times strive. And what a flurry of thrilling headlines that may deliver to MBW 😃!
However it could even be extraordinarily messy… and, assuming Mercuriadis has run his ship diligently, it could probably be unsuccessful.
There are boilerplate provisions in HSM’s settlement with HSF, as famous within the unique HSF prospectus, that cowl HSM’s contract being terminated if HSM commits the same old standout fiscal sins (wilful misconduct, fraud, breaches of obligations and many others.).
There’s additionally a boilerplate clause in there about HSM having the ability to be chopped by HSF if there’s a ‘Key Individual Occasion’ (i.e. if Merck Mercuriadis can not act as CEO of HSM).
However right here’s what we all know: (a) Mercuriadis’ ‘name choice’ has been a part of HSF’s prospectus earlier than anybody was requested to put money into the agency; and (b) That very same ‘name choice’ is clearly deemed rock stable sufficient for HSF’s board to publicly admit – prior to now few weeks – that they asked Mercuriadis to revoke it. (He mentioned no, obvs.)
Right here’s what else we all know: Hipgnosis Songs Fund, with a near-maxed-out RCF in a troublesome rate of interest surroundings, in all probability doesn’t have a barrel-load of money proper now for an enormous authorized struggle (esp vs. an opponent probably funded by Blackstone). Any change in supervisor would additionally require approval from the banks behind HSF’s debt, who, it’s understood, place confidence in Mercuriadis.
Finally, a peaceable resolution will certainly be the popular final result for all events.
As Mercuriadis mentioned in his assertion yesterday “… we stay up for working with a brand new Chair and reconstituted Board throughout this era to make sure that the Hipgnosis Songs Fund delivers for its shareholders“.
No, that’s not my intestine intuition.
Mercuriadis has acknowledged publicly that he want to see HSF shareholders profit from the capital progress that may include HSF’s owned catalog in years to come back. He’s additionally talked about his gratitude to these shareholders for making the institution of songs as an asset class doable.
No matter all that, my intestine intuition is that these shareholders will finally ask Mercuriadis/Blackstone to purchase Hipgnosis Songs Fund, or purchase the complete HSF catalog, inside the subsequent 12 months.
I’ve zero information of whether or not or not it will come to move, or if such discussions have even been flirted with up to now.
It simply feels just like the neatest doable conclusion for all. It’s an final result through which everybody at present invested in HSF, both through shareholder fairness or sweat (HSM included), can stroll away with a level of satisfaction.
The worth for that deal, I might guess, will fall someplace between HSF’s public share value and the now-infamous ‘operative NAV’ (i.e. personal valuation) placed on the HSF portfolio.
In March, that operative NAV stood at USD $2.316 billion.
There’s an entire different article to be written about this, digging deeper into the ‘true’ a number of that Harmony is paying for HSF’s rival, Round Hill Music Royalty Fund Ltd (see details of that here) vs. the a number of implied by HSM’s $440 million supply.
However for now I’ll persist with this: there’s a little bit of ‘having cake and consuming it’ inside your factors.
For a while now, Hipgnosis Songs Fund’s impartial valuer, Citrin Cooperman, has come in for flak (from these with a bearish view on Hipgnosis) for the 8.5% low cost price utilized in CC’s valuations of HSF.
Regardless of value of capital and rates of interest leaping up and up, Citrin Cooperman (previously Massarsky Consulting) has resisted the thought of elevating that 8.5% to, say, 9% or 9.5%, at each flip.
There may be fierce debate on the market over this resolution: For instance, see Spherical Hill Music Royalty Fund Ltd’s use of a second valuer (FTI), along with Citrin Cooperman, when getting its personal valuation report done in April.
For a calculation to find out the Spherical Hill fund’s worth (for the aim of financing with financial institution debt), Citrin Cooperman caught with a reduction price of 8.5%.
FTI, then again, used the next low cost price, of 9.25%.
(FTI used a decrease price when calculating the fund’s value for ABS financing.)
Citrin Cooperman’s 8.5% low cost price is among the causes, says HSF critics, why there’s an such unhealthy gulf between Hipgnosis Songs Fund’s share value/market cap and its ‘Operative NAV’ at the moment.
But if that 8.5% low cost price went up, as some HSF critics counsel it ought to within the present fiscal surroundings, then as a direct end result the impartial worth of HSF would go down.
And because of that, the now-rejected $440 million supply from Hipgnosis Songs Capital/Blackstone for the 29 catalogs of HSF would abruptly look considerably rosier (vs. the re-valued value of HSF’s belongings).
Moreover, throughout HSF’s ‘go-shop’ interval, HSF’s board and monetary advisor JP Morgan couldn’t find any other party willing to raised HSC’s $440 million supply for the belongings.
That’s regardless of 17 firms having just a little kick of HSF’s tires in the beginning of the ‘go-shop’ course of.
(Some sources counsel the ‘go-shop’ contained offputting ‘poison drugs’ for rival bidders vs. Blackstone’s $440 million supply, not least the truth that Blackstone/HSC had a ‘matching proper’ to gazump any third-party bid that got here ahead. Different sources near the ‘go-shop’, nevertheless, argue it was a reliable course of, and that within the music business ‘matching rights’ are commonplace in the course of the acquisition tender of enormous catalogs. With out ‘matching rights’, they argue, consumers would clearly be unwilling to point out their value to the open market – and their opponents.)
Will HSF shareholders find yourself regretting that they handed on HSC/Blackstone’s $440 million supply – which equated to a a number of of 18.3x historic Web Writer Share (NPS) of the catalogs in query?
Perhaps. Perhaps not. That every one is dependent upon the place the general public worth of Hipgnosis Songs Fund strikes subsequent.
As issues stand, anticipate Merck Mercuriadis, with that all-important ‘name choice’ in his again pocket, to have a front-row seat for the subsequent chapter on this story.
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