REG - Hipgnosis Songs Fund - Proposed Change to Articles of the Company

Hipgnosis Songs FundAnnouncement

18/01/2024 07:00

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RNS Number : 0787A  Hipgnosis Songs Fund Limited  18 January 2024

This announcement contains inside information for the purposes
of UK Market Abuse Regulation

 

 18 January 2024

LEI: 213800XJIPNDVKXMOC11

Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")

Proposed Change to Articles of the Company

 

The Board of Hipgnosis Songs Fund announces that it will publish a circular
(the "Circular") to propose that the Articles of the Company are amended, by
way of a special resolution (the "Resolution"), to enshrine the payment of a
fee, at the Board's discretion, of up to £20 million (in aggregate) by the
Company 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.

 

Introduction and Background to the Proposal

At the Company's Annual General Meeting convened on 26 October 2023,
shareholders of the Company ("Shareholders") overwhelmingly voted against the
Company continuing its business as a closed-ended investment company.

Shareholders also overwhelmingly voted against the proposed sale of a
portfolio of 29 music catalogues for aggregate cash consideration of $440
million to Hipgnosis Songs Capital ("HSC") at the Extraordinary General
Meeting held on the same day. HSC is the trading name of Hipgnosis SC IV
(Delaware) L.P., a limited partnership represented by its general partner
which is indirectly controlled by Blackstone Inc. and advised by Hipgnosis
Song Management Limited ("Hipgnosis Song Management"). Hipgnosis Song
Management is also the Company's investment adviser ("Investment Adviser").

Following these shareholder votes, the composition of the Board of directors
of the Company underwent significant change to form a Newly Constituted Board.
The Newly Constituted Board is conducting a strategic review, announced on 26
October 2023, looking at all options to be considered for the future of the
Company, with the aim of maximising value for shareholders.

The Newly Constituted Board has undertaken a substantial investor consultation
exercise, having engaged with shareholders holding more than 60% of the
Company's shares. One of the key themes of these consultations was
shareholders' concern around the Investment Adviser's "Call Option", which
gives the Investment Adviser the right to purchase the portfolio upon
termination of the Investment Advisory Agreement. Shareholders have told the
Board that the Call Option constitutes a material conflict of interest for the
Investment Adviser and acts as a significant deterrent to any third-party
potential offerors who might seek to acquire the Company or its assets. The
Board believes that the Investment Adviser's Call Option therefore depresses
the potential value of the Company by limiting certain possible opportunities
for Shareholder value creation.

The Board therefore proposes that the Articles of the Company are amended, by
way of a special resolution, to:

·    enshrine the payment of a fee of up to £20 million (in aggregate) by
the Company, at the Board's discretion, to any prospective offeror(s) who may
approach the Board seeking to make an acquisition of one or more of its
subsidiaries which own the majority of the Company's music assets, and/or all
or some of the Company's assets, on terms recommendable by the Board to
Shareholders; and

·    the extent permissible by UK Takeover Code issued by the Panel on
Takeovers and Mergers, as amended from time to time, authorise the payment(s)
and/or reimbursement(s) by the Company of up to a maximum aggregate amount of
£20 million to bona fide prospective offeror(s) for the entire issued share
capital of the Company on terms recommendable by the Board to Shareholders

(together, the "Proposal").

The Newly Constituted Board considers that the Proposal will provide
significant protection to prospective offerors against their due diligence and
acquisition costs, up to a maximum of £20 million (in aggregate), to ensure
that they are not deterred from seeking to engage with the Company regarding a
recommendable offer for the Company's assets as a result of the terms of the
Investment Adviser's Call Option.

The Newly Constituted Board therefore considers that the Proposal will provide
greater potential opportunities to maximise value for Shareholders.
Specifically in relation to the Proposal, the Newly Constituted Board has
consulted with several of the Company's largest shareholders, holding in
aggregate more than 35% of the issued share capital and all whom have
indicated their support for the Proposal. The Strategic Review is ongoing, and
the Board is not actively seeking one or more potential offers for the
Company.

 

Notice of the Extraordinary General Meeting

A circular, containing further details of the Proposal and the Call Option and
a notice convening the Extraordinary General Meeting in order to pass the
Resolution is expected to be dispatched to Shareholders in due course.

The Circular will set out the background to and reasons for the Proposal and
the reasons why the Directors, having consulted its financial adviser and
broker Singer Capital Markets, consider the Proposal to be in the best
interests of the Company, having regard to the interests of its Shareholders
as a whole, and recommend that Shareholders vote in favour of the Resolution
as they intend to do in respect of their shareholdings. A further announcement
will be published in due course.

 

Robert Naylor, Chairman of Hipgnosis Songs Fund Limited, said:

"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.

"From our shareholder consultation, core to the requirement for change is
addressing the Call Option held by our Investment Adviser, Hipgnosis Songs
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."

 The person responsible for making this notification is Robert Naylor,
 Chairman of Hipgnosis Songs Fund Limited.

For further information please contact:

Hipgnosis Songs Fund

 Robert Naylor

                                +44 (0) 20 7496 3000
 Via Singer Capital Markets

 Singer Capital Markets - Corporate Broker

 James Moat / Alaina Wong / Angus Campbell (Corporate Finance)     +44 (0) 20 7496 3000

 Alan Geeves / James Waterlow / Sam Greatrex (Sales)
 Headland Consultancy - Financial PR                               +44 (0) 20 3805 4822

 Susanna Voyle / Charlie Twigg

 

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