Hipgnosis Songs Fund sells 20,000 songs for $23.1m

UK-listed Hipgnosis Songs Fund Limited has sold a catalog of around 20,000 songs for a gross consideration of $23.1 million.

In an announcement to the market on Monday (December 11), HSF said that “these non-core songs, which are a subset of those identified as the Second Disposal as set out in September, were bundled with the iconic Songs acquired by the Company in 2020 as part of Kobalt Fund One“.

Hipgnosis has not confirmed the name of the buyer.

The ‘Second Disposal’ referred to there by HSF was announced on September 14 as part of a set of proposals by the HSF board and its investment adviser, the Merck Mercuriadis-led Hipgnosis Song Management (HSM), which they believed at the time would act as a catalyst for a rerating of the company’s share price.

MBW has previously theorized that the ‘Second Disposal’ portfolio may be comprised of around 18,000 songs once owned by Nettwerk‘s music publishing arm.

These 18,000 ‘Nettwerk’ songs were acquired by HSF as part of its November 2020 buyout of ‘Kobalt Fund One’ for $323 million – a deal which saw a total of 33,000 songs/portions of songs transferred to HSF from Kobalt Capital.

As MBW wrote in July this year: “That Nettwerk catalog includes many critically acclaimed songs – by artists such as 10,000 Maniacs and Tasmin Archer – that arguably don’t fit with Hipgnosis Songs Fund’s central thesis.

That thesis, to quote Mercuriadis in HSF’s financial reports, is laser-focused on “a portfolio of songs that is unrivaled for its extraordinary success and cultural importance”.

Our July analysis continued: “The Kobalt transaction was also unique in Hipgnosis history: It appears to be the only time that Mercuriardis (via a Hipgnosis company) has not directly acquired rights from an artist or songwriter – meaning his company arguably has a lesser connection to the talent behind the Nettwerk portfolio than with (to name just a few artist/writers who’ve sold assets to Hipgnosis companies in the past five years) Justin Timberlake, The-Dream, Lindsey Buckingham, or Neil Young.”

MBW suggested that Kobalt Music Group – which continues to administer the ‘Kobalt Fund One’ assets for HSF – may be a possible buyer of the ‘Second Disposal’ assets from HSF.

In addition to the plan to sell the “second disposal” assets detailed above, another proposal put forward by the HSF board and its investment adviser on September 14 was the plan to sell 29 catalogs (First Disposal Portfolio) to Blackstone-backed Hipgnosis Songs Capital (HSC) for $440 million to fund a share buy-back program and reduce debt.

That bid was executed via Mercuriadis-led Hipgnosis Song Management, which also counts Blackstone as a strategic investor.

At the end of October, HSF shareholders voted to reject that $440 million offer from Blackstone/Hipgnosis Songs Capital for 29 of HSF’s catalogs.

Confirming the sale of the ‘Second Disposal’ assets on Monday, HSF said that the songs “require time intensive, ongoing accounting and reporting obligations and do not all have perpetual ownership rights.”

HSF added that “their eventual sale was part of the Company’s acquisition strategy”.

Hipgnosis Songs Fund reports that the gross consideration of $23.1 million for the 20,000 songs sold reflects a 14.2% discount to the valuation of the songs as of 30 September 2023, and represents a 9.6x Net Publisher Share multiple.

The sale represents approximately 1% by value of the company’s investment portfolio.

Net proceeds are expected to equal approximately $22.6 million. HSF says that those net proceeds will be used to pay down RCF (Revolving Credit Facilty) drawings, “providing the Company with greater headroom under its future covenant compliance reporting”.

Hipgnosis Songs Fund secured a $700 million revolving credit facility in October 2022 to refinance an existing $600 million in debt.

In addition to the news of the confirmed catalog sale, HSF has announced its appointment of Singer Capital Markets as sole corporate broker and financial adviser, and Shot Tower Capital, LLC as lead adviser to conduct due diligence on the company’s assets as part of its ongoing strategic review.

That strategic review was announced by Hipgnosis Songs Fund’s Board on October 19 ahead of the company’s vote on October 26 on whether to keep the fund continuing in its present form via a so-called ‘continuation vote’.

Around 83% of HSF stockholders opted to reject ‘continuation’ – while also voting to oust HSF’s Chairman, Andrew Sutch.

Last month, Hipgnosis Songs Fund appointed Rob Naylor as its new Chairman of the board and as a non-executive director. In addition, Francis Keeling was named a non-executive director at HSF.

The HSF Board revealed in an update to its strategic review last month that it intended to appoint independent advisers to conduct due diligence on the Company’s assets.

The Board told the market in an announcement on November 23 that, “completion of this due diligence will provide a strong knowledge base from which the Board will commence a process of identifying and bringing forward alternative proposals for the future of the Company”.

During this period, the Board said that it has requested that Hipgnosis Song Management Limited, the Company’s Investment Adviser led by Merck Mercuriadis-led Hipgnosis Song Management, to propose “alternative terms for their future investment advisory arrangements to the Company”.

As MBW reported in OctoberHipgnosis Song Management and Merck Mercuriadis have an exclusive ‘call option’ in place to buy the entirety of HSF’s assets if HSM is ever terminated as HSF’s investment adviserMusic Business Worldwide

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