Remember when Concord bought Round Hill Music‘s assets off the UK stock exchange for USD $469 million in November?
The US company is now looking to pull off a similar acquisition, this time for the song portfolio of another UK-listed entity – Hipgnosis Songs Fund.
The HSF board has this morning (April 18) notified shareholders that Concord has made a cash offer equivalent to USD $1.40 billion to acquire its assets.
Concord’s offer is technically being made by Concord Chorus Ltd (CCL), an entity controlled by Alchemy Copyrights LLC.
Investment giant Apollo Global Management is financing Concord’s bid via debt capital, as well as taking a minority equity interest in CCL.
HSF’s board has accepted Concord’s offer, which it says comes at a premium of 32.2% to Hipgnosis Songs Fund’s closing share price yesterday (April 17), and is recommending its shareholders do the same.
Shot Tower Capital, in its review of the company, placed a midpoint valuation on HSF’s portfolio last month of USD $1.95 billion*.
UPDATE: Shot Tower’s calculation for HSF placed an enterprise valuation of USD $1.95 billion on the company. Concord Chorus’ bid is based on an equity valuation of $1.40 billion. Yet on an enterprise valuation basis (i.e. including HSF’s debt), Concord’s offer values HSF’s portfolio at USD $2.005 billion (potentially moving up to $2.030bn with the $25m ‘bonus’ as mentioned below), i.e. slightly higher than Shot Tower’s midpoint. In simpler terms: Shot Tower valued HSF at $1.11 per share; Concord Chorus’ offer values HSF at $1.16 per share, potentially moving up to $1.18 per share.
Previously, Hipgnosis Songs Fund’s portfolio was valued at USD $2.6 billion by Citrin Cooperman as of September last year.
Interestingly, the Chairman of Hipgnosis Songs Fund these days, Rob Naylor, was chairman of Round Hill’s UK-listed fund when that firm executed its sale deal to Concord.
Naylor and his board at HSF are looking to rubber-stamp the Concord deal via an HSF General Meeting and a Court Meeting on June 10. HSF expects to finalize the sale to Concord in Q3 this year.
The big question all of this begs, of course: What happens to Merck Mercuriadis and his Blackstone-backed Hipgnosis Song Management (HSM), which continues to be HSF’s investment adviser?
The HSF board, in its announcement today, essentially requested that HSM leave without a fuss.
It told HSF shareholders that they would share in an additional USD $25 million – minus due fees paid to HSM – should HSM acquiesce to a termination agreement in time for the intended takeover of HSF by Concord.
Will HSM quietly accept this termination agreement? Don’t bet on it.
HSM continues to hold a ‘call option’, set out in HSF’s formational documents in 2018. This ‘call option’ decrees that, should HSM ever be fired as HSF’s investment adviser, a clause would be triggered that enables HSM to acquire HSF for a pre-set sum.
That pre-set sum would be the higher of:
- (i) Hipgnosis Songs Fund’s public market cap;
- (ii) Hipgnosis Songs Fund’s ‘fair value’ as adjudicated by an independent valuer; or
- (iii) The price that a separate and credible third-party is willing to pay to acquire HSF (i.e. a matching right).
So. If Blackstone/HSM was willing to match Concord’s $1.4 billion bid for HSF, then under the original terms of its ‘call option’, HSM could gazump it.
This, though, begs two more big questions: (a) Will Blackstone front the money for HSM to launch a matching bid?; (b) Would HSM’s ‘call option’ withstand any legal tests from the HSF board, especially if the HSF board attempts to fire HSM as investment adviser for ’cause’?
The second of these questions becomes crucial when you consider a damning report on some of HSM’s accounting practices at HSF, published by Shot Tower Capital last month.
In response to that publication, HSM said that there were “aspects of [Shot Tower’s report] that HSM strongly disagrees with and considers to be misleading”.
Whichever way you look at it, it seems unlikely – if Blackstone is willing to finance the process – that Merck Mercuriadis and HSM allow HSF’s portfolio to be sold to Concord without a tussle.
‘Without a tussle’ is the exact outcome HSF Chairman, Rob Naylor, is looking for, however.
“We would now encourage Hipgnosis Song Management, the Company’s Investment Adviser and Blackstone, which is HSM’s majority owner, through funds they manage and/or advise, to agree an orderly termination of the Investment Advisory Agreement,” said Naylor today.
“This would enable the payment of a larger consideration under the agreed transaction with Concord and bring to an end a period of uncertainty for all Hipgnosis stakeholders.”
HSF’s announcement today stated that the firm’s board has recently spoken to “a number of potentially interested parties” regarding a potential sale of HSF’s portfolio, and received “a number of indicative and preliminary proposals” including several from Concord.
Commenting on Concord’s bid today, Robert Naylor, Chairman of Hipgnosis said: “The Board is pleased to announce and unanimously recommend this US$1.4 billion Offer for Hipgnosis from Concord. The acquisition represents an attractive opportunity for our shareholders to immediately realise their holding at a premium, mitigating the risks we see ahead to achieving a material improvement in the share price.
“At the same time, the Board is confident that Concord, one of the world’s leading independent music companies, is the right owner to take on the Hipgnosis catalogue and manage it in the interests of composers and performers.”
Bob Valentine, CEO of Concord said: “We are pleased to be announcing this Offer for Hipgnosis, which has been unanimously recommended by its Board and has the support of 29.38 per cent. of their shareholders. We believe we are offering a fair price for Hipgnosis’ catalogues and music assets, giving its shareholders the opportunity to realise their investment at a significant premium to the prevailing share price in cash.
“Concord is the world’s leading independent music company, with extensive experience in developing, producing, and marketing recordings and songs around the world in order to maximise their value. We believe we can integrate Hipgnosis’ catalogues into our wider portfolio of 1.2 million songs in a way that will deliver benefits for composers, performers and all our stakeholders.”
* This story now reflects Shot Tower’s final midpoint valuation of $1.95 billion, updated on March 28, 2024 and based on HSF figures as of September 30, 2023.Music Business Worldwide