Hipgnosis Shareholders Endorse $25M Incentive for Prospective Catalog Buyers

LONDON — Hipgnosis Songs Fund’s shareholders have voted overwhelmingly in favor of passing a special resolution that authorizes the payment of up to 20 million pounds ($25 million) to prospective bidders seeking to acquire the fund’s assets.

The special resolution was approved by 99.9% of the fund’s shareholders at an extraordinary general meeting held in London on Wednesday (Feb. 7), according to a regulatory filing.

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It gives Hipgnosis Songs Fund’s (HSF) board of directors the power to pay a fee capped at £20 million to any prospective bidder or bidders making a “bona fide” offer or offers to acquire one or more of the company’s subsidiaries which own music assets, and/or some of the fund’s music rights on favorable terms. The fee is meant to reduce the risk of making an offer for Hipgnosis Songs Fund’s music catalogs by providing “significant protection” against their due diligence and acquisition costs.

In a statement, Robert Naylor, chairman of Hipgnosis Songs Fund, thanked shareholders “for their continuing support” and said the company’s board “remains focused” on its strategic review, “under which it is looking at all options to deliver shareholder value.”

The London-listed fund, which owns full or partial rights to the song catalogs of artists ranging from Justin Bieber, Neil Young, Bruno Mars, Jimmy Iovine, 50 Cent, Shakira, Blondie, Justin Timberlake, Lindsey Buckingham and many more, hopes that the enticement of a large fee will help draw potential bidders.

In October, shareholders voted against the music royalties fund’s proposed $440 million deal to sell 29 catalogues to Hipgnosis Songs Capital – a partnership between investment giant Blackstone and the fund’s investment adviser Hipgnosis Song Management – citing the lack of an “up-to-date” valuation.

October’s annual meeting of shareholders also saw a majority of investors vote against a resolution “to continue running the fund in its current form” — a so-called “continuation vote” — commencing a six-month countdown for the board to come up with a plan “for the reconstruction, reorganisation, or winding-up of the company.”

That led to the installation of a new executive board with Naylor replacing Andrew Sutch as chairman in November.

Last year wrapped with Hipgnosis lowering the value of its music portfolio following what Naylor described to investors as a strained relationship with its investment advisor, the Merck Mercuriadis-led Hipgnosis Song Management (HSM), over the catalog’s worth.

This year has so far begun on an equally rocky footing with the fund’s board of directors calling into question HSM’s ability to field competitive bids for its assets.

A major sticking point is the investment advisor’s call option, which gives it the right to purchase the company’s portfolio if its contract with the fund is terminated with less than 12 months’ notice, among other scenarios. The fund’s board contends that Hipgnosis Song Management’s call option harms its ability to receive competitive bids.

Last week, Mercuriadis announced that he will be stepping down as chief executive officer of Hipgnosis Song Management to take up a newly created chairman role with Ben Katovsky replacing him as CEO.

The company also recently issued an update on a previously disclosed lawsuit filed against it by a former business run by Mercuriadis – Hipgnosis Music Limited.

According to a company statement dated Feb. 5, Hipgnosis Music Limited has served legal proceedings against Mercuriadis, Hipgnosis Songs Management and the main fund in the London High Court alleging “an unlawful diversion” of a business opportunity.

Hipgnosis Music Limited, which was founded in 2015 when Mercuriadis was its director and is now being wound up, is looking to recover a “substantial but as yet unquantified sum” under the claim.

The board told investors that as “any liability of the company arises from Mr Mercuriadis’ conduct and knowledge” it was seeking to secure an indemnity from the industry veteran and HSM against any charge incurred by their actions.

Hipgnosis Songs Fund’s share price was roughly flat at 65 British pence ($0.84) following Wednesday’s extraordinary general meeting.

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