The board of the Hipgnosis Songs Fund have announced a strategic review of its operations in another bid to allay the concerns of investors.
However, the board nevertheless still urges shareholders to back the continuation of the Fund and the sale of a bunch of catalogues as part of efforts to boost share price, and advises that the Fund continue to utilise the services of Hipgnosis Song Management.
There are various entities within the Hipgnosis empire that was set up by Merck Mercuriadis. The Hipgnosis Songs Fund is the publicly listed investment entity that owns a stack of valuable music rights. Then there's the separate Blackstone-backed Hipgnosis Songs Capital that has also been buying up catalogues. Both are then advised by Hipgnosis Song Management, working alongside Hipgnosis Songs Group, which provides creative and administrative services.
Recent dramas have centred on the Fund, where many investors are unhappy with the current share price, and some have become critical of Hipgnosis Song Management. As part of a plan to boost share price, the Fund's board negotiated a deal to sell a stack of rights to Hipgnosis Songs Capital. The profits of that deal would be used to buy back shares and to make payments on the Fund's credit facility, with the aim of boosting share price.
The Fund's share price dipped even further earlier this week when the board admitted that they had over-estimated how much extra cash would be incoming as a result of the recent Copyright Royalty Board rulings on streaming royalties in the US. As they downgraded that estimate from $21.7 million to $9.9 million, the Fund also announced it was cancelling a proposed dividend payment to shareholders.
All of this is occurring as a continuation vote looms, that being a routine vote by investors on whether the Fund should continue to operate. The board are pushing for a vote in favour of continuation and therefore need to reassure investors that the concerns they have raised are being dealt with.
Announcing the strategic review yesterday, the board said that they had undertaken "extensive engagement over recent weeks with shareholders", and that "those meetings highlighted a continued belief in the company’s portfolio and growth prospects of the asset class as well as the need for changes by the company in order to deliver value for shareholders".
Two directors on the board, including Chair Andrew Sutch, are already standing down, with the hope being that a rejig at the top can provide some reassurance for investors. Though yesterday's statement also discussed the Fund's ongoing relationship with Hipgnosis Song Management.
It said that the board had considered terminating its investment advisory agreement with that Hipgnosis entity, but had concluded that doing so was not in the interest of shareholders, partly because of the impact it would have on the Fund's credit facility. Though the board's statement also confirmed that, if it did terminate its agreement with Hipgnosis Song Management, the other Hipgnosis business would have an option to acquire the Fund's catalogues.
"The board has asked the investment adviser to remove the clause in the investment advisory agreement related to the call option entitling it to acquire the company’s portfolio on termination of its contract", the board added, "which the investment adviser has declined to accept".
Responding to the strategic review, a spokesperson for Hipgnosis Song Management told reporters: “We continue to believe that [we are] uniquely positioned to deliver value to [the Fund's] shareholders as a result of our deep relationship with the songwriters that make up the catalogue and our song management expertise. We intend to continue to demonstrate this through our actions".