Another interesting day for Hipgnosis.
The board of the music investment company has today called for an extraordinary general meeting for shareholders in order to vote on a proposal that could draw out potential bidders.
Under the proposal by the board, a special resolution would be passed to “enshrine the payment of a fee, at the board's discretion, of up to £20 million… to any prospective bidder(s) who approaches the board seeking to make an acquisition of the assets of the company on terms recommendable by the board to shareholders".
The move to cover costs of any bid is designed to counter the ‘call option’ held by the investment adviser – Hipgnosis Song Management, led by Merck Mercuriadis with backing from Blackstone – to be able to acquire the Hipgnosis investment company upon termination of the advisory agreement.
It has been suggested that this has been a block on any sale of the company, which has gone through a period of turmoil in recent months in addition to long-term pressure on the share price. The board has expressed concern, based on recent transactions, that the company is undervalued.
But new chairman Robert Naylor, formerly of Round Hill, has moved to act against the “deterrent” of that call option, which had supposedly given Mercuriadis the upper hand in any ownership battle.
“Investors in Hipgnosis Songs Fund overwhelmingly voted for change when they rejected the continuation of the company and the proposed sale of certain music assets,” said Naylor. “From our shareholder consultation, core to the requirement for change is addressing the call option held by our investment adviser, Hipgnosis Song Management. This not only acts as a structural conflict between the interests of our shareholders and the investment adviser, but also creates a significant deterrent to potential bidders for the company's assets thereby depressing the value of the company.
“It is against this backdrop that we are proposing to change our articles to allow potential bidders to put forward their proposals for the company's assets, with significant cost protection, if supported by a board recommendation to shareholders. We are pleased, having discussed this proposal with many of our largest shareholders, that they are supportive of the board's efforts to unlock the full value from the company's assets. The newly constituted board believes it is essential to try to level the playing field so shareholder value can be maximised."
Shareholders voted against a portfolio sale in October and replaced the chairman. Under the current ownership model, a new strategy has to be put in place and approved by the board early this year.
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