Hipgnosis songs fund

Photo Credit: Hipgnosis Songs Fund

Amid ongoing investor dissatisfaction stemming from the proposed selloff of 29 catalogs, a record-low stock price, and more, Hipgnosis Songs Fund (LON: SONG) has officially launched a “strategic review.”

Hipgnosis revealed said strategic review today, on the heels of “extensive engagement” with shareholders and ahead of two high-profile investor votes scheduled for next week. The first of these votes concerns the proposed $440 million sale of the aforementioned 29 catalogs, including interests in the work of Barry Manilow, L.A. Reid, Fraser T. Smith, Nelly, and a number of others.

If approved, the deal would see the closely associated Hipgnosis Songs Capital assume ownership of the IP at hand. According to HSF execs, proceeds would be used to buy back shares and to pay down some of their business’s long-maxed-out credit line.

But critical statements from key HSF investors as well as unenthusiastic comments from in-the-know anonymous sources indicate that the transaction might fail to receive approval for a number of reasons. The second vote, for its part, will determine the future of HSF, referring specifically to whether it should be given the green light to keep on operating until at least January of 2026.

While investors appeared poised to vote in favor of HSF’s continuation – the Fund has also teed up multiple executive pivots – Hipgnosis stock earlier this week plummeted to a record low following the abrupt cancellation of a previously announced dividend. Of course, logic suggests that the developments have brought a heavy dose of uncertainty with regard to the continuation vote.

Enter the above-highlighted strategic review, which Hipgnosis Songs Fund says “will look at all options to be considered for the future” of the business and attempt to maximize “value for shareholders” with “a review of the future management arrangements” and more.

Though HSF’s board still recommends voting for the continuation resolution and the catalogs divestment, it has now “appointed an executive search firm” to identify a suitable replacement for chairman Andrew Sutch “at the earliest opportunity.”

Upon initially announcing Sutch’s planned departure in late September, HSF had relayed that the chairman would step down (and retire as director) “once a suitable replacement is found and, in any event, at or before the Company’s annual general meeting in 2024.”

Next, HSF has “looked at making changes to” a long-debated agreement with its Blackstone-powered “investment adviser,” Hipgnosis Song Management (HSM). Among other things, said adviser’s been collecting millions in “advisory” fees (to the tune of $12.5 million during the prior fiscal year) from HSF even throughout the Fund’s lengthy catalog-acquisition dry patch, earnings reports show.

Hipgnosis Songs Fund “considered serving notice on” HSM to terminate the pact, “but concluded that it is not currently in shareholders’ interests to do so,” per its formal notice. If executed before another adviser was brought in and approved by lenders, the termination “would be an event of default under” HSF’s revolving credit facility, according to the document.

“The Investment Advisory Agreement can be terminated,” HSF wrote of the matter, “other than for cause, by the Company on not less than 12 months’ notice, with an additional one-time termination fee equal to one year’s advisory fee calculated on NAV [net asset value] as at the termination date.”

Meanwhile, the Hipgnosis Songs Fund board also went ahead and asked the investment adviser to nix an agreement clause “entitling it to acquire” the HSF “portfolio on termination of its contract.” Predictably, the adviser “declined to accept” the proposal.

“In light of this announcement and in advance of the Continuation Resolution, the Board will be undertaking a further round of engagement with shareholders,” concluded HSF, further relaying that it “does not envisage any offer” under The Takeover Code and that it’d retooled its credit-facility agreement in the wake of the stock-price slip.

During today’s trading hours, HSF stock rebounded by 4.11 percent to 76 pence (92 cents) per share. Earlier this week, investors in Round Hill Music’s own songs fund voted overwhelmingly to accept a $468 million buyout offer from Concord.