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Hipgnosis Songs Fund sees institutional shareholder uprising

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Hipgnosis Songs Fund [LON:SONG] the Guernsey-based investment trust formed to invest in music rights and artists back catalogues had a crunch shareholder meeting today (26th October).

As previously reported, after a consistent fall in the share price, issues with managing its debts, questions about the valuation of its portfolio and the future of potential economics of streaming, and most presciently corporate governance issues, highlighted by founder and CEO Merck Mercuriadis proposing the sale of a fifth of the fund’s catalogue at a substantial discount to a privately-held vehicle, Hipgnosis Songs Capital, administered by himself and private equity firm, Blackstone, the institutional shareholders led an uprising.

The fund, back peddled in the last week, promising to initiate a strategic review, promising to look for a new chair and phasing out its current board through retirement. However, the review came unstuck as it appeared that getting rid of Mercuriadis as investment advisor and Blackstone would be difficult, given that debts of USD700m would become immediately due to a syndicate of banks if Mercuriadis was removed as investment advisor and wasn’t immediately replaced with another ‘pre-screened by the banks’ advisor. Moreover, Mercuriadis had written in an option to buy the full catalogue of Hipgnosis Songs Fund should his investment advisory role be terminated.

Changes on the Hipgnosis Songs Fund board

On Wednesday (25th October) the fund sent non-exec directors, Andrew Wilkinson and Paul Burger packing. Wilkison set up a firm that used to manage the Rolling Stones, and Burger was former president of Sony Music EMEA. However, with regard to the sales process of the catalogue to the Mercuriadis/Blackstone private fund, which Hipgnosis Songs Fund termed ‘Go-Shop’ the fund said it had not received a better offer from any other party and it was advising that the disposal go through as arranged.

It was not enough, however. In the AGM vote shareholders voted against the proposal to continue, meaning that the fund will not be able to complete its GBP440m sale of the catalogue to the Mercuriadis/Blackstone Hipgnosis Songs Capital vehicle.

This means that the company is facing wind-up.

Shareholders also wanted chairman, Andrew Such, who had already announced his retirement, to stand down immediately. He was gone as the doors closed on the meeting.

Institutional shareholders offer a lifeline 

However, the institutional shareholders had offered a lifeline to the fund, with one, Asset Value Investors saying last week that a vote against the continuation resolution did not necessarily mean that it the fund would immediately need to proceed into wind-up proceedings and that the (surviving) board should consult with its major shareholders as to what direction the fund should take.

Hipgnosis though said: “If a continuation resolution is not passed, the directors are required to put forward proposals for the reconstruction, reorganisation or winding-up of the company to the shareholders for their approval within six months following the date on which the relevant continuation resolution is not passed.”

“These proposals may or may not involve winding-up the company or liquidating all or part of the company’s then existing portfolio of investments and, accordingly, failure to pass a continuation resolution will not necessarily result in the winding-up of the company or liquidation of all or some of its investments.”

Hipgnosis Songs Fund opened trading on Thursday (26th October) at 74.6p, was up to 80.7p when the AGM reported and at 77.4p at the time of going to press. Over the year-to-date the funds shares have returned -11.64% and over one-year -15%. The fund still has a market cap of GBP906m, and its shares have ranged between 58p and 99p over the past 52-weeks.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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