A revamped board of Hipgnosis Songs (SONG ) will have six months to decide whether to wind down the music royalties fund or put forward proposals for its reconstruction after the company suffered a crushing defeat by shareholders today.

In back-to-back meetings this morning in Notting Hill, West London, shareholders voted overwhelmingly against its continuation, its proposed asset sale to fund manager Merck Mercuriadis (pictured above) and the re-election of chair Andrew Sutch, who stepped down immediately. 

Sutch declared 83.2% of shareholders voted against the continuation of the investment company launched five years ago. 

He said 84% of votes cast rejected the £372m sale of 29 song catalogues to another fund managed by Mercuriadis’ Hipgnosis Song Management for its majority shareholder Blackstone, the US alternative assets group. Following the loss of the continuation vote, this poll was academic and would not have taken effect even if a majority voted in favour.

Investors also pushed out Sutch with 71.5% voting against the chair’s re-election despite the fact he had already said he would step down to step down next year.

This, along with last night’s resignation of two directors, means the board will undergo an almost complete refresh and will be heralded as a win for activist investors Asset Value Investors (AVI) and Metage, which both deemed the board unfit after it proposed selling a fifth of its assets at a discount.

Sylvia Coleman, the new senior independent director who became a non-executive four years ago, said the board and HSM had engaged widely with investors over recent months. ‘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.

‘The 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,’ she said in a statement.

Coleman, like Sutch, a fomer corporate lawyer at Stephenson Harwood, received the backing of 80.3% of shareholder votes, while Cindy Rampersaud, a chartered accountant who has held senior roles at Virgin, Warner Brothers and Pearson and joined the board in August, gained the support of 86%. She will chair the audit and risk management committee.

Simon Holden, the third survivor of the previously six-strong board, received a less convincing support of 61% of votes. The board said it would consult with dissenting shareholders to find out why they opposed the private equity specialist who also serves on the boards of Chrysalis (CHRY ), HICL Infrastructure (HICL ) and JPMorgan Global Core Real Assets (JARA ).

Tom Treanor, executive director of AVI, which holds 5% of shares in SONG, said ‘shareholders have spoken and sent a clear message that the status quo is unacceptable and that a total reset is required’.

He said he looked forward to the new board ‘working closely with shareholders to turn the company around’. 

Mercuriadis addressed the gathering from Los Angeles via video link, telling shareholders this ‘does not mean the end of the company necessarily’ and offers an ‘opportunity to resest and focus on the future’. 

‘Conversations with shareholders show they’re excited about the quality portfolio but want some change,’ he said. ‘I look forward to working with the new chair during this period.’

Mercuriadis added the current share price discount of more than 50% did not represent the underlying value within the portfolio and highlighted that SONG had traded at a premium for the first three-and-a-half years following its launch in July 2018. 

Investor attention will now turn on how best to re-rate the shares and eliminate the discount or extract their money at fair value. Jefferies analyst Matthew Hose said the recent sale and valuation of rival Round Hill Music (RHM ) implied an 11% cut in SONG’s last published net asset value. 

He believed the reconstituted board would most likely serve notice on HSM. ‘This will give the manager the right to acquire the portfolio at “fair” value following the twelve-month notice period, which arguably could be accelerated to the benefit of all parties.

‘The question then is whether this board is able to propose an “open” sale process for the portfolio that extracts this fair value for shareholders, while still honouring the manager’s option, or will the existence of the option simply prohibit any realistic bids?’

At the meeting, at which up to 50 attended, shareholders fired questions at Sutch, who was queried on misleading figures and the nature of arrangements with the fund manager.

Sutch said Mercuriadis and the board had ‘been faced with a number of challenges’ but he believed the board has ‘carefully, professionally and competently dealt with them’. 

‘It has often been questioned whether this is an investment company investing in music assets or a music company trying to be an investment company. The truth is, it has elements of both,’ the former chair said. 

Shares in SONG rose 7% immediately following the meetings but have pulled back to trade just half a penny, or 0.7%, higher at 75.5p.