In an announcement circulated at 6.30pm this evening, Alchemy Copyrights, LLC – the backer of Concord Chorus Limited – said that it has increased its offer for Hipgnosis Song Fund to $1.25 a share. This represents an increase of $0.09 over its previously tabled bid of $1.16, or $0.07 over the maximum value of that bid reliant on Hipgnosis Song Management agreeing to terminate its advisory agreement with SONG, which would make a further $25 million – or 2 cents per share – available to shareholders.
This comes hot on the heels of Blackstone’s indication that it would consider offering $1.24 a share for SONG. Blackstone – the owner of Hipgnosis Song Management, SONG’s investment advisor – has also made it clear that, should its bid not be successful, it – and HSM – would take legal action to invoke the ‘call option’ that HSM holds, allowing it to buy the SONG catalogues in the event of a sale. That legal action could – potentially – put a poleaxe to any other deal for SONG.
SONG’s directors endorse offer and add shares to Concord’s irrevocable commitments
“Concord remains committed to becoming the new owner of Hipgnosis”, says the announcement, and has “engaged with the Hipgnosis board and its advisers in relation to the value of the original Concord offer. Today the boards of Concord and Hipgnosis are pleased to announce that they have reached agreement on the terms of an increased cash offer… which has been unanimously recommended by the Hipgnosis board”.
The announcement continues, saying that the directors of SONG “believe that the increased Concord offer is in the best interests of Hipgnosis shareholders as a whole, and accordingly unanimously recommend that shareholders vote in favour of the offer at the court meeting and general meeting which are due to be held on or around 10 Jun”.
As with Concord’s previous offer, the music rights investment vehicle has obtained irrevocable commitments from a number of shareholders – including the directors of SONG, who between them hold 327,796 shares in the fund, or 0.03% of the total share capital.
New irrevocable commitments include Round Hill Music’s Josh Gruss
Those irrevocable commitments now include additional support from a number of funds run by Kite Lake Capital. Kite Lake was co-founded by Massi Khadjenouri and is notable for being one of the largest hedge fund managers “in Europe, or globally, co-founded by a woman”, with Khadjenouri saying “a firm run by a woman has a different culture and a different perspective. We are very down to earth with our feet on the ground. Our culture is not conducive to creating ‘egos'”.
Alongside Kite Lake’s irrevocable commitment is another new addition – musician and entrepreneur Josh Gruss, owner of Quad Studios in Nashville, guitarist and songwriter in band Rubikon and – possibly more notably – CEO of Round Hill Music. According to regulatory information, Gruss owns 12,893,227 shares in SONG which represents 1.066% of the share capital.
This now gives Concord’s bid irrevocable commitments “or letters of intent” over 378,162,890 shares in SONG, which represents “in aggregate, approximately 31.27% of the issued share capital” of the fund.
What is not clear is when Gruss secured his holding in Hipgnosis: despite any shareholders with more than 1% of the share capital being required to file a Form 8.3, CMU has – as yet – been unable to find such a disclosure filed by Gruss, suggesting that his shareholding may only recently have crossed the 1% threshold.
Noteworthy points from the latest Concord announcement
There are a number of notable points in the latest Concord announcement: first that the directors of SONG are not only recommending the offer to shareholders, but very explicitly and publicly endorsing it, by way of making an irrevocable commitment to the offer using their – admittedly modest, by other investors’ standards – stake in the fund.
Secondly, we now have an indication of a timeline for all of this to be resolved: a general meeting to be held by 10 Jun.
Lastly, it’s notable that Josh Gruss has endorsed the offer by way of an irrevocable commitment. As CEO of Round Hill Music, pal of Rob Naylor – the current chair of SONG, and former chair of the Round Hill Music Fund, which was also acquired by Concord – it highlights not only the Byzantine and internecine interweavings of the music rights acquisition world, but also the “common push” by Roundhill- and Concord-associated people and firms to try and ensure that the Hipgnosis Songs Fund catalogues end up with Concord. And, by extension, out of the clutches of Blackstone.
Of course, 10 Jun is an awfully long time away: just six days ago it looked like a deal with Concord was a near certainty, only for Blackstone to pop up and change the landscape – and calculus – of the future of SONG.
What’s next – and what about the HSM/Blackstone call option?
With a full 47 days to go until that general meeting, a lot could happen.
It’s now – presumably – almost certain that we will see more movement from Blackstone, whether in the shape of an increased offer of its own, or throwing in the towel.
A final point to note is that statement that “the increased Concord offer is in the best interests of Hipgnosis shareholders as a whole”. With the HSM call option still an open question – and HSM and Blackstone lawyering up ready to fight any suggestion that it cannot be invoked – it begs the question whether a prolonged and acrimonious legal fight over that call option is something that is in the best interests of shareholders.
Now, of course, at one level, were a Concord acquisition to go through with, perhaps, the tacit acceptance – if high risk gamble – of Blackstone, confident that it could win back the catalogue through court action around the call option, then that legal fight becomes Concord’s problem, not the current SONG shareholders.
However, it’s unlikely that Blackstone would passively let that acquisition happen, if it was confident the call option stands, and so SONG and Concord must either be very certain that they have something up their sleeve that will trump any legal fight over the call option, or they must have a plan in place to get HSM and Blackstone to back away from that gambit.
One thing notably absent from this revised offer: the £20 million “F.O. clause” from Concord’s previous shot, which would make an additional payment to shareholders of $0.02 if HSM agreed to terminate its advisory relationship with SONG and thus give up its call option.
That £20 million is – as CMU previously noted – roughly equivalent to the fees HSM would take over a twelve month handover following amicable and mutual agreement to terminate its relationship with SONG.
Is a backroom deal being thrashed out with HSM and Blackstone to get them to give up their call option? It seems unlikely, given how much Blackstone seems to want the SONG catalogues for itself – but as we pointed out yesterday, anything is possible when you’re operating in a state of Hipgnosis.