In a turbulent turn of events, Hipgnosis, the London-listed company known for acquiring the music rights of renowned artists such as Justin Bieber, Beyoncé and Neil Young, is encountering opposition from its investors following a challenging year. At its recent Annual General Meeting, shareholders dealt a blow to the company by rejecting its request for a new five-year mandate. This decision has given Hipgnosis a six-month window to restructure or potentially face closure.
One of the major points of contention was the proposed sale of 29 music catalogs, which included those of artists like Justin Bieber, Shakira, and Barry Manilow, to the investment group Blackstone for $440 million. Despite the intention to bolster the company’s share price, some shareholders believed that the offered price was too low, leading to the rejection of the sale.
Sylvia Coleman, the senior independent director of Hipgnosis, acknowledged the shareholders’ belief in the quality and potential of the music assets, even though they did not support the proposed transaction or continuation vote according to Fortune.
Leading up to this critical vote, Asset Value Investors (AVI), a major shareholder, had urged fellow investors to reject the company’s proposals, citing untapped potential in Hipgnosis’s shares.
This recent development is the latest challenge for Hipgnosis, a once-promising music investment fund founded in 2018 by CEO Merck Mercuriadis and Chic co-founder Nile Rodgers. The company aimed to disrupt the music industry by acquiring artists’ back catalogs and selling royalty rights to investors, primarily capitalizing on the rise of streaming.
However, factors like rising interest rates and a higher discount rate for valuing future assets have led to a devaluation of Hipgnosis’s portfolio. While the company’s music catalog is valued at approximately $2.1 billion, its market value has significantly dropped to around $1.1 billion.
Despite these challenges, investors still see value in the royalty-based asset class, as demonstrated by the strong performance of other funds like Round Hill Music Royalty Fund.
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The company now faces an uncertain future, as shareholders overwhelmingly voted against its attempt to secure a further five-year mandate during its annual meeting according to the Financial Times. This outcome necessitates the board to explore various options for its future and present proposals within the next six months, with over 83 percent of votes cast against the company’s continuation.
If no agreement is reached with shareholders and if investors insist, the trust could potentially be wound down or sold. Additionally, a proposed deal to sell a $440 million music rights portfolio to a sister fund managed by private equity group Blackstone was also rejected by shareholders.
Tom Treanor, executive director at Asset Value Investors, emphasized the need for a reset and change, stating, “Shareholders have spoken and sent a clear message that the status quo is unacceptable and that a total reset is required.”
Merck Mercuriadis, the founder of Hipgnosis, noted that the AGM provides an opportunity to reset and focus on the future, acknowledging the consensus among shareholders regarding the company’s impressive portfolio of iconic songs and their desire for change.
Sylvia Coleman, senior independent director of Hipgnosis Songs Fund, mentioned, “While shareholders have not supported our proposed transaction or the continuation vote, it is clear that they share our belief in the inherent quality and potential of these assets.”
This vote signifies a pivotal moment in the five-year journey for investors in the company and reflects the evolving landscape of music rights as a mainstream asset class. Initially, Hipgnosis was at the forefront of companies seeking to acquire music rights, offering investors a chance to profit from the surge in streaming revenues. However, as interest rates rose and the discount rate for valuing song rights increased, the company faced challenges that have led to its current predicament.
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In recent developments, Hipgnosis suspended the payment of its interim dividend, citing potential risks to its debt covenants due to changes in royalty payments to songwriters in the United States. Concerns were also raised about the relationship with Blackstone, which co-owns the management company for Hipgnosis and operates a rival fund that continues to acquire song rights.
Additionally, on the night before the AGM, the company announced the resignations of board directors Andrew Wilkinson and Paul Burger to avoid potential embarrassment during the meeting.
