The future of Hipgnosis Songs Fund, the British company that helped kick off the music industry’s trend of top-dollar deals for artists’ song catalogs, is in question after its shareholders on Thursday rejected a $440 million divestment plan and voted against maintaining the company’s current structure.
Hipgnosis, founded by Merck Mercuriadis, a former manager of stars like Beyoncé and Elton John, was listed on the London Stock Exchange in 2018 and pitched investors on music rights as a special kind of financial asset that is “more valuable than gold or oil.” Since then Hipgnosis, along with a sister fund backed by the private equity giant Blackstone, have spent more than $2 billion to acquire music catalogs from Neil Young, Shakira, Justin Bieber, the Red Hot Chili Peppers, Blondie and other artists and songwriters.
But in recent months Hipgnosis has come under increasing pressure from dissatisfied investors who have seen the company’s share price drop in comparison to its so-called net asset value, an estimate of its catalogs’ worth prepared by an independent firm. Its share price closed at 74.20 pounds on Thursday, down about 43 percent from a high of 129.20 in November 2021. Its market capitalization is about $1.2 billion.
The company also shocked investors last week by suspending its quarterly dividend, after saying that Citrin Cooperman, the independent firm that values its assets, had reduced the amount the company was expected to receive as a result of an industrywide royalty rate adjustment in the United States. Citrin Cooperman, the company said, had calculated that Hipgnosis would receive $21.7 million in retroactive payments, but recently reduced that to $9.9 million, and Hipgnosis said it had suspended the dividend payment — which had been announced at 1.3125 pence, or about 1.6 cents, per ordinary share — to remain compliant with its debt covenants.
The global rise in interest rates has altered the calculus of many top-dollar catalog deals, but the investors in Hipgnosis have also grown concerned about the company’s management.
“No investor ever knew that the fund was being managed so close to the edge that they were very close to tripping the debt covenant,” Sachin Saggar, a research analyst at Stifel, said in an interview.
Hipgnosis recently proposed selling 29 catalogs for $440 million to the Blackstone-backed fund, which is managed by a company led by Mercuriadis. The proceeds were to help pay off Hipgnosis’ debt and buy back shares. But many investors balked, calling the price too low.
At the company’s general meeting on Thursday, shareholders rejected the catalog sale and voted against maintaining the company’s structure as an investment trust, a decision that must be renewed every five years. According to an announcement by Hipgnosis, the company’s board now has six months to introduce proposals for future plans, which “may or may not involve winding-up the company or liquidating all or part of the company’s existing portfolio of investments.”
The chairman, Andrew Sutch, and two other directors will leave the board.
One possibility is that the assets could be sold to Hipgnosis Song Management, the advisory firm led by Mercuriadis, who has that right through an agreement known as a call option.
In a statement on Thursday, Mercuriadis said: “Our conversations with shareholders have revealed a consensus that they are enthusiastic about the quality of the company’s iconic portfolio of songs, however it is also clear that they are asking for change and we respect that feedback.”