The new board of Hipgnosis Songs (SONG ) wants to entice potential bidders for the company by offering to pay up to £20m in costs.

begun to take action and are hoping to entice prospective bidders, who may be concerned about  ‘call option’, with what analysts have called an ‘unusual’ £20m potential payment.

As part of the strategic review undertaken by chair Robert Naylor, who formerly ran the board of rival Round Hill Music Royalty Fund, SONG’s directors have spoken to shareholders owning more than 60% of shares.

A key concern was the ‘call option’, which gives fund manager Merck Mercuriadis’ the right to purchase the portfolio upon the termination of his firm’s appointment.

Shareholders told the board this constitutes a ‘material conflict of interest’ and is a ‘signficant deterrent’ to any bidders for the songs portfolio. The board itself thinks the option ‘depresses the potential value’ of the company.

To address these issues the board is proposing the amendment of the company’s articles to ‘enshrine’ a £20m payment, where permissible by the UK Takeover Code, to reimburse a potential bidder or bidders for due diligence and acquisition costs if Mercuriadis’ Hipgnosis Songs Management triggers the call option.

The board said it hopes this proposal, which requires shareholder approval at an extraordinary general meeting, will ‘provide greater potential opportunities to maximise value for shareholders’.

Naylor and his team have consulted with the largest shareholders, holding more than 35% of issued share capital, who support the idea.

Peel Hunt analyst Markuz Jaffe said the proposal was ‘unusual’ but ‘could help to solve a key issue hanging over potential future pathways for the company’.

However, he said he found it ‘somewhat disappointing that shareholders are potentially on the hook for a substantial cost in order to attract potential bidders, and that there still appears to be potential for the current investment adviser to exercise its call option at a future date’.

Shares in SONG were up 0.6% in morning trading at 71p, a 50% discount to the end of September net asset value of 142p, a figure the board has cautioned should be taken with a large pinch of salt.

The strategic review was launched after shareholders in October voted against the continuation of the company and the $440m sale of song catalogues to HSM. Naylor said the review was ‘ongoing’ and it is ‘not actively seeking one or more potential offers for the company’.

Another one bites the dust

Last week (11 January) Sylvia Coleman, who was on the board prior to its collapse, resigned with immediate effect.

Naylor said he was ‘very grateful’ for Coleman’s support and ‘especially appreciative’ of her help over the past few months as the board ‘transitioned and reshaped itself’.

The only remaining board member from pre-2023 is Simon Holden, a non-executive director and chair of the portfolio committee. Holden, who has been on the board since 2018, received lukewarm support for his continuation at the annual general meeting in October, with 61% of voting shareholders approving him.

Cindy Rampersaud, a chartered accountant, who held senior roles at Virgin, Warner Brothers and Pearson, joined the board in August last year. Given her short stint on the board shareholders backed her retention and she gained the support of 86% at the AGM.

Apart from Naylor, other new members of the board are veteran activist Chris Mills and Frances Keeling, who was also a non-executive director at Round Hill Music fund which was sold last year to Concord, a music and theatrical rights company.