In a stock exchange notice today (19 October), the Hipgnosis' board said it would be considering "all options" for the future of the trust, including a review of the future management arrangements of the trust, with the aim of maximising value for shareholders.
However, it stressed that it was not envisioning any takeover or merger offers as part of the review.
Hipgnosis pulls dividend as expected retroactive royalties halve
The board added it had initially considered terminating its investment advisory agreement, but concluded it was not in shareholders' interest to do so, as this would lead to a default on its revolving credit facility without a new investment adviser.
This is due to a one-time termination fee equal to one year's advisory fee calculated on NAV if the agreement is cancelled without cause, it said.
The board had asked its current investment adviser, Hipgnosis Song Management, to remove the call option entitling it to acquire the trust's portfolio on termination, but it had declined, it explained.
The decision to initiate a review came following "extensive engagement" with shareholders over the upcoming votes on 26 October to decide whether to sell a fifth of its music catalogue and on the continuation of the trust, the board said.
"These meetings highlighted a continued belief in the company's portfolio and growth prospects of the asset class as well as the need for changes by the company in order to deliver value for shareholders," it said.
Following the news of the strategic review, the board will now be undertaking a further round of engagement with shareholders.
Asset Value Investors urges Hipgnosis shareholders to vote against continuation
The board continued to recommend voting for the trust's continuation resolution, as well as the planned $465m music catalogue sale to Blackstone.
Earlier this week, Asset Value Investors, which holds a 5% stake in Hipgnosis, called on shareholders to vote against continuation and the catalogue sale, arguing that a management reset was "urgently required".
Additionally, the trust's board said that its lenders had agreed to amendments to its revolving credit facilities, following the announcement earlier this week (16 October) that it had withdrawn its proposed interim dividend due to an expectation of "materially reduced" retroactive royalty payments.
These changes will return the trust to compliance with the fixed charge cover ratio covenant, it explained.
Meanwhile, the board noted it had also begun the process to select a new chair, following the news last month that current chair Andrew Sutch will step down once a suitable replacement is found, or by its 2024 annual general meeting.
It has appointed an executive search firm and will announce a new chair "at the earliest opportunity", it said.