Don’t always believe what you read in the press.
On Thursday (April 18), Hipgnosis Songs Fund‘s board announced that Concord had made a cash offer for its portfolio of USD $1.40 billion. HSF’s board said it had accepted this offer, and was recommending its shareholders do the same.
Just over 23% of those shareholders, HSF confirmed, had already agreed to “irrevocable undertakings” to accept Concord’s offer which, when debt is taken into account, valued HSF at approximately USD $2.005 billion.
(These “irrevocable undertaking” shareholders included Asset Value Investors Limited, CCLA Investment Management, Schroder & Co Limited, J O Hambro Capital Management Limited, Madison Avenue Partners, LP, Gresham House Asset Management Ltd, Hawksmoor Investment Management and Premier Fund Managers Limited. Concord’s offer is being made via Concord Chorus, in which Apollo Global Management is a minority partner; Apollo is primarily funding Concord’s bid via debt financing.)
Some media outlets took all of that as enough substance to report that Concord’s acquisition of Hipgnosis Songs Fund was a done deal.
But as MBW pointed out, it’s not yet a done deal – not until a majority of HSF’s shareholders say so.
Today (April 20), the importance of recognizing this fact showed itself.
Blackstone (via Blackstone Europe LLP) has just confirmed to MBW that it has today (April 20) tabled a proposed cash offer of USD $1.24 per share for the takeover of Hipgnosis Songs Fund.
That offer, according to MBW’s math, is worth approximately USD $1.50 billion, i.e around $100 million higher than Concord’s existing offer (which stood at USD $1.16 per share).
In a statement, Blackstone confirmed that its $1.5 billion bid was the fourth proposal it has submitted to date to HSF.
Technically, Blackstone hasn’t yet tabled a “firm offer” for HSF – this just remains a proposal. But should it be accepted, a “firm offer” would be expected to quickly follow.
In a statement, Blackstone said: “Blackstone strongly encourages the Board of Hipgnosis to recognise the significant increase in value available to all shareholders under the terms of [the $1.24-per-share offer], over the $1.16 as set out in the Concord Offer, and to work with Blackstone to reach agreement on a unanimously recommended Firm Offer in an expeditious manner.”
What happens if HSF’s board rejects Blackstone’s $1.5 billion offer?
For one thing, that might not delight the ~77% of HSF shareholders who hadn’t yet “irrevocably” accepted Concord’s offer as announced earlier this week.
Blackstone and Concord could yet become entangled in a bidding war for HSF, of course.
There may, though, be another route forward for Blackstone should its $1.5 billion proposal be rebuffed.
Blackstone is the co-owner, alongside Merck Mercuriadis, of HSF’s investment advisor, Hipgnosis Song Management.
HSM has a ‘call option’ within its agreement with HSF, which dictates that, should HSM be fired as HSF’s investment adviser, a clause would be triggered that enables HSM to acquire HSF for a pre-set sum. This 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 HSF’s board now rejects Blackstone’s current offer, and Blackstone is unwilling to go higher in its bid, we could see an interesting narrative play out.
In its announcement of its acceptance of Concord’s bid on Thurday, HSF’s Chairman, Rob Naylor, called on HSM to “agree an orderly termination of [its] Investment Advisory Agreement” with HSF.
Judging by Blackstone’s announcement today, such an “orderly termination” doesn’t appear likely.
Blackstone said today: “Blackstone notes that under the terms of the investment advisory agreement between Hipgnosis Song Management Limited, as investment adviser (“HSM”), and Hipgnosis, dated 27 June 2018 (as amended) (the “IAA”), on termination of the IAA, HSM has an option, exercisable at any point in time during the six month period following the effective date of termination of the IAA (the “Termination Date”), to purchase from Hipgnosis the entire portfolio of songs held as at the Termination Date (the “Option”).
“Blackstone and its portfolio company HSM, having taken extensive legal advice, remain confident in the enforceability of the Option. Blackstone is seeking to find a positive outcome for all shareholders at a fair and reasonable value; however, Blackstone and HSM value the contractual protections under the IAA and will vigorously defend HSM’s rights pursuant to the Option if required to do so.”
One other interesting tidbit: The Blackstone announcement today was sent out in a .pdf with the file name containing the words “Project Eclipse”.
To paraphrase the Floyd, then, Will the sun (Concord) be eclipsed by the moon (Blackstone)?
Game on.Music Business Worldwide