Both the publicly-listed vehicle (SONG) and the private $1bn Blackstone vehicle (Hipgnosis Songs Capital) are advised by the Merck Mercuriadis-run Hipgnosis Song Management.
In a stock exchange notice today (14 September), the board outlined several proposals it believes will act as a catalyst for re-rating the £1.1bn trust's share price.
These include catalogue sales for aggregate gross consideration of $465m, a share buyback programme of up to $180m, the repayment of $250m drawn under the trust's revolving credit facility and the introduction of additional, lower investment advisory fee tiers.
The move comes more than two months after the board first revealed it had been considering strategic options to narrow its deep discount to net asset value, after a number of top shareholders called for the disposal of non-core assets to demonstrate portfolio value.
Hipgnosis Songs considers strategic options ahead of September continuation vote
The board had been facing additional pressure in the last week to deliver a compelling offer to shareholders before its five-year continuation vote, after Round Hill Music Royalty fund (RHM), its closest peer, announced it had agreed to a $468.8m takeover offer by Concord on Friday (8 September).
Hipgnosis Songs Capital, the buyer of the ‘first disposal portfolio', or 29 music catalogues, is a partnership between Hipgnosis Song Management and funds managed or advised by Blackstone.
Blackstone owns a majority stake in SONG's management company Hipgnosis Songs Management and also runs the Hipgnosis Songs Capital fund, which holds £1bn of the private equity giant's money.
Under the terms of the deal, SONG will retain 81% of its existing portfolio by fair value, with an increased focus on older vintages, while the board said the remaining portfolio will have a growing concentration of "culturally important and successful songs".
Hipgnosis Songs has also agreed in principle to sell a portfolio of non-core songs, the ‘second disposal portfolio', for approximately $25m.
The transaction includes 'Go-Shop' provision, under which SONG would be able to consider other competing offers for the first disposal portfolio for a period of 40 days but a termination fee of $6.6m would be payable by SONG to Hipgnosis Songs Capital.
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On the basis of the terms agreed with Hipgnosis Songs Capital, the trust expects to pay approximately $6.7m in corporation tax. The board had previously published an estimate of the potential tax charge ($245m) in the event of a sale of all assets.
The proposals are subject to shareholder approval at an extraordinary general meeting and the 2023 annual general meeting, in which the trust's five-year continuation vote will be held. Both are expected to be held no later than 25 October 2023.
Merck Mercuriadis, CEO and founder of Hipgnosis Song Management and SONG, said: "Earlier this year we initiated consultations with shareholders, in contemplation of the continuation vote and our concerns that the true value of our iconic songs was not being reflected in our share price.
"It was clear that shareholders shared our belief in the continuing long-term opportunity of Hipgnosis Songs fund and wished to see a significant share buy back programme and reduction of our leverage in order to deliver a re-rating in the share price.
Mercuriadis said he was "delighted" with this transaction, which will give "clear transactional evidence" of the current realisable value of the trust's catalogues to help investors understand and have confidence in its asset value.
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The purchase price of the sale of catalogues to Hipgnosis Songs Capital realises a total return of 44%, which he said "validates our investment strategy despite the current economic challenges".
Andrew Sutch, chair of SONG, added: "We believe the proposals set out today provide the best way to balance immediate shareholder value with the exciting longer-term prospects for the company.
"Therefore, the board intends to unanimously recommend shareholders support these proposals and vote in favour of the resolutions at the Extraordinary General Meeting and the 2023 AGM."