Merck Meruciadis Abbey Road Oct 2018 by JF

Amid a well-documented showdown between the publicly traded Hipgnosis Songs Fund (HSF) and its Hipgnosis Song Management (HSM) investment advisor – including a key vote from HSF’s investors next week – Merck Mercuriadis has moved to step down as HSM’s CEO and instead serve as chairman.

Blackstone-powered HSM announced the executive-level recalibration via a formal release today. As mentioned (and as many already know), the two Hipgnosis entities remain embroiled in a high-stakes dispute centering on, among other things, the status of HSM as the songs fund’s investment advisor.

The multifaceted disagreement has been heating up in recent weeks ahead of a late-April deadline for the revamped HSF board to submit a fresh plan for the songs fund’s future. (October had seen investors, evidently fed up with the advisory agreement and the massive discrepancy between HSF’s market cap and appraised asset value, vote against the company’s continuation.)

We last checked in on the situation near January’s end, when HSF’s board took a step towards enticing prospective catalog buyers to come to the table notwithstanding some unfavorable elements of the HSM advisory agreement.

Said elements refer mainly to a “call option” through which HSM would in certain situations be able to swoop in and acquire all the IP at hand – with the correspondingly arduous bidding process dissuading third-party participation and then contributing to a less-than-ideal sale price, as many HSF investors see it.

To prevent the outcome and drum up interest in HSF’s song rights, the board has proposed establishing an up to £20 million fund to compensate possible purchasers, in theory offsetting their due-diligence expenses and potentially laying the groundwork for a sale.

A vote on the associated special resolution, which HSF’s decidedly disgruntled investors presumably favor, is scheduled to take place on the 7th. And it’s against this backdrop that Hipgnosis Song Management has announced Merck Mercuriadis’ shift to chairman.

HSM president and COO Ben Katovsky is taking his place as CEO, as described by the release, with Mercuriadis in any event continuing “to devote the majority of his time to HSM.” In a statement, the veteran music manager expressed the belief that HSM is “at an important juncture in our development where the services we provide to our clients” – namely HSF, of course – “are of paramount importance.”

Meanwhile, Katovsky in remarks of his own emphasized HSM’s continued interest in working “constructively” with HSF.

“I particularly hope we will be able to work constructively with the Board of Hipgnosis Songs Fund Ltd,” relayed Katovsky, “as I believe that HSM is best able to deliver value for their shareholders whether they decide the Company has a future as a long-term operation or wish to pursue the sale of assets following their strategic review.”

At present, the chief motivation behind HSM’s C-suite shakeup is unclear. But repositioning Merck Mercuriadis behind the scenes – and underscoring a desire to enhance HSF catalogs’ revenue for shareholders – could be part of a last-ditch effort to smooth things over before the aforementioned vote. To be sure, Hipgnosis Song Management hasn’t hesitated to demonstrate its desire to stay aboard as HSF’s investment advisor, even if that means nixing the call option.

“As a matter of prudence,” HSM also wrote today, “we have requested the Board of Hipgnosis Songs Fund Ltd to approve the planned transition of Merck’s role.”

Nevertheless, logic and evidence indicate that HSF shareholders (and, in turn, the board) probably won’t be convinced by the move; their vote next week will be significant in more ways than one. When the market closed on Friday, Hipgnosis Songs Fund stock (LON: SONG) was worth 65.3 pence per share, down 2.54 percent on the day.