Hipgnosis Songs Fund (HSF), the UK-listed music rights fund, is expected to hold its 2023 ‘continuation vote’ on October 26. This vote, which will take place at HSF’s Annual General Meeting (AGM), will allow shareholders to decide whether to keep the entity going as a closed-ended investment entity. The fund’s shareholders and management are frustrated with the significant gap between the firm’s ‘operative Net Asset Value’ (NAV) and its value on the public market. This potential discrepancy may be addressed by a $440 million transaction, in which HSF shareholders are considering selling 29 catalogs to Blackstone-backed Hipgnosis Songs Capital (HSC) to potentially re-rate HSF’s share price. HSF’s board has also made new changes, including appointing a new Chair and amendments to the Investment Advisory Agreement, in an attempt to keep investors confident in the firm’s long-term prospects.
A potential $440 million transaction is being considered by Hipgnosis Songs Fund’s shareholders as a catalyst to “re-rate” the fund’s share price closer to its operative NAV. The sale, managed by Hipgnosis Song Management, which is run and partially owned by Merck Mercuriadis, involves 29 catalogs sold to Hipgnosis Songs Capital (HSC). The offer price reflects a 26% increase on HSF’s original purchase and a 51% premium on the company’s market cap value. These negotiations may have an impact on the outcome of the fund’s continuation vote in 2023. Shareholders and management are concerned about the wide gap between HSF’s NAV and its share price value.
In addition to the potential transaction, HSF has announced several changes to its operations. Andrew Sutch, HSF’s Chair since 2018, will step down, and the firm will begin recruiting a new Chair. Andrew Wilkinson has also notified the board of his intention to retire, reducing the number of directors to five. HSF has provided shareholders with a circular outlining new measures, including the potential for another continuation vote in 2026. Amendments to the Investment Advisory Agreement have been made, giving the advisory firm a 12-month notice period should the agreement be terminated, and introducing a clause that allows termination if HSF’s share price stands at an average discount to operative NAV of 10% or more. However, the board retains the right to reverse its termination decision during the notice period.