Hipgnosis Investors Vote for Change, Reject Partial Catalog Sale to Blackstone

Investors in Hipgnosis Songs Fund on Thursday overwhelmingly demanded a new board make structural changes to the troubled music rights company in ways that don’t include selling off part of its 65,000-song catalog, which includes compositions by Neil Young, Shakira and the Red Hot Chili Peppers. 

At the company’s annual meeting of shareholders in London, 83.2% of investors’ votes were cast against a resolution “to continue running the fund in its current form”–what’s known as a continuation vote, and 84% of votes were cast against a plan to sell 29 song catalogs to Hipgnosis’ Blackstone-backed sister fund, Hipgnosis Songs Capital, according to filings.

The ‘no’ vote signals unequivocal shareholder anger with the company founded by Merck Mercuriadis, and it kicks off a six-month countdown for the board to come up with a plan “for the reconstruction, reorganisation, or winding-up of the company,” possibly “liquidating all or part of the company’s existing porfolio of investments,” according to the board’s statement.

Who will lead development of that plan is unclear. Investors voted 71.5% against the re-election of Hipgnosis Songs Fund board chair Andrew Sutch, speeding up his departure, which was already set for sometime before the third quarter of 2024. Fund directors Andrew Wilkinson and Paul Burger also resigned this week days after the board kicked off a strategic review of its leadership.

“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,” Sylvia Coleman, senior independent director of Hipgnosis Songs Fund said in an emailed statement. “Directors are now expediting the appointment of a new chair who will drive the strategic review we have already announced, with a clear focus on delivering improved shareholder value.”

In separate emailed comments, Mercuriadis said the shareholder vote “marks an opportunity to reset and focus on the future.”

“Our conversations with shareholders have revealed a consensus that they are enthusiastic about the quality of the Company’s iconic portfolio of songs, however it is also clear that they are asking for change and we respect that feedback,” he added. “Hipgnosis Song Management’s new management team and I have already started taking the relevant necessary action to meet the expectations of shareholders.”

Frustrated shareholders have complained in recent months that the fund moved too slowly in obtaining a lower interest rate on its debt in 2022, that the proposed deal to sell catalogs to its sister fund undervalued its assets and that the deal was structured to disincentive competing offers from outside parties. The fury reached a fever pitch last week when the board scrapped an upcoming dividend payment due to what it called an accounting error.

“Shareholders have spoken and sent a clear message that the status quo is unacceptable and that a total reset is required,” Tom Treanor, the head of research at Asset Value Investors, which owns a roughly 5% stake in the fund, said in an email. “We look forward to a refreshed board working closely with shareholders to turn the company around.”

Mercuriadis, the former manager of Elton John and Guns N’ Roses, will continue as Hipgnosis Songs Fund’s investment advisor. Mercuriadis founded Hipgnosis in 2017 and took it public on the London Stock Exchange (LSE) in July 2018.

“Our commitment to the Company’s shareholders remains absolute and we look forward to working with a new Chair and reconstituted Board during this period to ensure that the Hipgnosis Songs Fund delivers for its shareholders,” Mercuriadis added in his statement. “During this process, shareholders can be certain that Hipgnosis Song Management will continue to manage the Songs with the greatest duty of care as always.”

Hipgnosis Songs Fund’s share price was roughly flat at 75 British pence ($0.91) at 2:00 in London after having spiked to an intra-day high of 81 pence ($0.98).