The Hipgnosis Song Fund board wants a solution to the call option it gives the investment adviser, Merck Mercuriadis-led Hipgnosis Song Management, the ability to buy the company's music catalogs if its contract expires.
After consulting with shareholders holding more than 60% of the outstanding shares, the board of Hipgnosis Songs Fund explained to regulatory filing on Thursday (January 18) that the option to purchase Mercouriadis was “one of the main issues” of concern. Shareholders believe the call option prevents third parties from making bids for the company's music assets and “reduces the potential value” of the Hipgnosis Songs Fund, limiting its ability to create value for shareholders.
Seeking shareholder feedback is part of a strategic review of the Hipgnosis Songs Fund following a vote against going ahead at a general meeting in October. During that meeting, shareholders also voted down the proposed sale of 29 music catalogs for $440 million to Hipgnosis Songs Capital, a joint venture of investment adviser and investment giant Blackstone.
To address shareholder concerns about the call option, the board proposed a special resolution to amend the company's articles to pay a fee of up to 20 million pounds ($25.4 million), at the board's discretion , to a prospective buyer. The fee is intended to reduce the risk of bidding on Hipgnosis Songs Fund music catalogs. The board believes the proposed fees “will provide significant protection to prospective bidders against due diligence and acquisition costs” and will also “provide greater potential opportunities to maximize shareholder value,” according to the filing. The board says it has received support for the proposed fee from shareholders representing more than 35% of the issued shares.
“Investors in the Hipgnosis Songs Fund voted overwhelmingly in favor of change when they rejected the continuation of the company and the proposed sale of certain music assets,” chairman Robert Naylor said in a statement. “From consultation with our shareholders, the core of the demand for change is to address the call option held by our investment adviser, Hipgnosis Songs Management. This not only acts as a structural conflict between the interests of our shareholders and the Investment Adviser, but also creates a significant deterrent to potential bidders for the Company's assets, thereby reducing the value of the Company.”
Shareholders will vote on the amendment at an extraordinary general meeting at a date yet to be announced.
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