The private equity titan Blackstone is this weekend drawing up plans for a £1.2bn takeover bid for the owner of songs performed by Blondie, the Kaiser Chiefs and the Red Hot Chili Peppers.
Sky News can exclusively reveal that Blackstone has already tabled several offers to buy Hipgnosis Songs Fund (HSF), the London-listed music rights investment company.
The first was worth 82p-a-share, insiders said, while another was pitched at 88p and the most recent was worth marginally less than a 93.2p-a-share bid for HSF unveiled on Thursday from Concord Chorus, a music and theatrical rights company.
Sources said that Blackstone, which is being advised by investment bankers at Jefferies, was now considering making a higher offer for HSF, which trades on the London Stock Exchange under the ticker SONG.
One added that Blackstone had been “surprised” by the announcement this week that SONG’s board had recommended the bid from Concord Chorus – which is backed by Apollo Global Management – given its own ongoing conversations about an offer.
The person also questioned HSF’s decision to recommend a proposal “at the start of a bidding war, without attempting to extract greater value for shareholders”.
A source close to HSF disputed that characterisation.
A takeover of the company would crystallise value for Hipgnosis shareholders, who saw the shares slump to a record low in March of about 56p in the wake of a reduction in the value of its portfolio and a suspension of dividend payments.
HSF’s troubles have been played out for months in the public arena, culminating last October in a decision by shareholders to reject its board’s goal of securing their backing for its continuation.
Pic: Amy Harris/Invision/AP
The company has been mired in bitter recriminations and legal arguments over its performance and governance.
A review conducted by Shot Tower Capital, a specialist adviser, concluded in March that SONG’s assets were worth a fifth less than Hipgnosis Song Management (HSM), its investment adviser, had reported last September.
Blackstone is already deeply immersed in HSF’s future because it owns a 51% stake in HSM, which has a contract to manage the SONG assets.
If HSM agreed to terminate the contract between them, it would release up to $25m for HSF although analysts say it is unclear why HSM would willingly forego any cash it believes is owed to it.
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One of the obstacles facing Blackstone in any new offer lies in the fact that the SONG board has received irrevocable acceptances of the Concord Chorus bid from over 23% of shareholders.
Those only fall away in the event that a rival bidder tables an offer worth at least 10% more – in this case over 102p-a-share.
However, HSM also has a call option in its management agreement with HSF which allows it to acquire the portfolio of music assets even if Concord Chorus is successful, at the same price it pays.
The call option is understood to evaporate if the management contract is terminated for cause.
The legal disputes involving the companies, which insiders have left the situation finely balanced, with a possible compromise agreement between them also being floated by investors.
A source close to Blackstone said it was very confident in its contractual position.
Artists whose catalogues are owned by the listed company also include Neil Young and Mark Ronson.
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The remainder of HSM is owned by Merck Mercuriadis, a former manager of Beyonce and Sir Elton John, who launched Hipgnosis in 2018 with the aim of turning music royalties into a mainstream asset class.
He struck a $1bn deal three years later for Blackstone to provide firepower for buying music rights and managing catalogues.
Since then, some of the world’s most prominent financiers, including the likes of Apollo and KKR, have developed a similar appetite to buy into music assets.
In February, Mr Mercuriadis moved from becoming CEO of HSM to the chairman’s role, with Ben Katovsky taking over as CEO.
Sources emphasised on Saturday that Blackstone’s interest in acquiring HSF was on a standalone basis and was independent of Mr Mercuriadis.
That stance is likely to raise questions about the buyout giant’s ongoing relationship with the Hipgnosis founder.
Blackstone is one of the world’s most powerful investors, with hundreds of billions of dollars of ‘dry powder’ available for investment.
When its alliance with Mr Mercuriadis was unveiled two-and-a-half years ago, Qasim Abbas, a senior managing director in Blackstone’s tactical opportunities team, said: “This partnership underscores the long-term, sustainable value we see in creative content across the wider entertainment industry.
“The music industry has been at the forefront of the fast-growing streaming economy and is unlocking new ways of consuming content.”
Shares in HSF closed on Friday at 91.9p, giving it a market capitalisation of just over £1.1bn and marginally below the level of the recommended offer from Concord Chorus.
On Saturday, Blackstone and HSF both declined to comment.