Blackstone starts bidding war for Hipgnosis Songs with $1.5bn counter offer

US private assets group launches $1.24 per share cash bid to trump the $1.16 Concord offer recommended by the royalties fund's board on Thursday.

Blackstone has launched a counter-offer for Hipgnosis Songs Fund (SONG ), raising the prospect of a bidding war after the investment company recommended a $1.4bn (£1.1bn) bid from US music rights group Concord last week.

The alternative assets giant, which owns SONG fund manager Hipgnosis Song Management (HSM), is reported to have offered $1.24 per share in cash, beating the $1.16 offer from Concord on Thursday. This would value the Guernsey closed-end fund at nearly $1.5bn.

It is said to have been one of several parties that bid for the company as it undertook a strategic review after shareholders voted against the closed-end fund’s continuation and ousted its former board in October for attempting to pass a cut-price deal to sell some of its assets back to a Blackstone fund managed by HSM.

Announcing the deal, which has the support of 23.6% of shareholders, the board said these other offers had been ‘less certain and at a lower value’ than the agreed Concord bid.

A statement from the US private equity manager reported by the Financial Times on Saturday referred to this being its fourth proposal and said it ‘strongly encourages the board of Hipgnosis to recognise the significant increase in value available to all shareholders’.

Blackstone is said to have been surprised by the agreement with Concord and intends to firm up the offer next week.

In theory Blackstone is in a strong bidding position as a majority investor in HSM whose chair is SONG founder Merck Mercuriadis. He assembled the portfolio of over 65,000 songs in a costly £1.3bn acquisition spree of 146 catalogues from artists such as the Red Hot Chilli Peppers, Blondie and the Kaiser Chiefs.  

HSM has a call option giving it the right for six months to buy the assets by paying the higher of the Concord bid, market value or portfolio fair value. This effectively means matching or beating Concord’s offer which was pitched at a 4.3% premium to operative net asset value and a 32% above Wednesday’s closing share price.

However, the option would expire immediately if SONG terminated HSM’s mandate for breach of contract. Analysts believe the board, chaired by Robert Naylor who oversaw the sale of a rival listed royalties fund to Concord last year, has the grounds to do after a series of disputes with HSM.

These culminated in the publication three weeks ago of a due diligence report by adviser Shot Tower which found the fund manager’s financial policies ‘materially overstated revenue and Ebitda’ or earnings from the portfolio leading to a 26% writedown in their valuation.

SONG shares jumped 24% last week in response to the Concord offer, leaving them at a small premium over asset value for the first time in two-and-a-half years. At  91.5p the shares stand at a seven-month high but remain below their July 2018 launch price of 100p and well below their 129p peak in November 2021. 

Blackstone’s counter offer was first reported by Sky News.

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