Update: Shares in Hipgnosis Songs (SONG ) leaped past their 100p flotation price for the first time in 18 months today after a counter offer from Blackstone, the owner of its fund manager, opened up the prospect of a bidding war for the previously beleagured royalties fund.

SONG shares, which had already surged 24% last week in response to a $1.4bn cash offer from Concord, the US music rights group, jumped another 11.4%, or 10.5p, to 102.4p.

This is above the 100p ($1.24) per share cash offer made by Blackstone at the weekend, which values SONG at $1.5bn and which its board said it was willing to recommend if the private assets giant firmed up its proposal.

This suggests that investors are betting on Concord, which is financed by rival private equity group Apollo Global Management, will come back with a higher offer.

Last Thursday its offer of $1.16 (94p) per share was recommended by the SONG  board and received the irrevocable support of 23.6% of its shareholders.

The emerging contest between the two US groups is ‘excellent’ news for SONG investors who ploughed 100p into the launch in July 2018, said Numis Securities. Shareholders saw their stakes peak at 129p in late 2021 before tumbling in the face of higher interest rates and controversy over the valuations to hit a low of 58p last month.

Since launch they have made around 23% including dividends, less than expected but a positive result that many would accept and move on from, the broker suggested.

Stifel analysts said: ‘If all else is equal then Concord on paper should be able to “top” Blackstone given it has the cheaper cost of capital (backed by a US pension fund) and at least as of now, a stronger platform to extract revenue from an under-managed portfolio,’ they said.

However, the broker said the call option held by Hipgnosis Song Management (HSM) giving it the right to buy the portfolio for six months of having its contract terminated could deter Concord and Apollo from escalating the bid battle.

The analysts believed Concord could be in line to receive the £20m incentive fee that
shareholders approved earlier this year if its board recommended deal fails.

In a statement this morning, SONG’s board confirmed it received an improved bid approach from Blackstone yesterday.

SONG’s board said it would continue to provide Blackstone and its advisers access to financial information to enable them to complete their due diligence work and ‘announce a firm intention to make an offer, as soon as possible’.

The board advised shareholders to take no action, however, and said it continued to unanimously recommend the offer from Concord.

Blackstone, which is a majority investor in SONG investment adviser HSM, made three previous offers during the Guernsey closed-end fund’s strategic review launched during a shareholder rebellion last October.

‘Blackstone strongly encourages the board of Hipgnosis to recognise the significant increase in value available to all shareholders under the terms of its fourth proposal, over the $1.16 as set out in the Concord offer, and to work with Blackstone to reach agreement on a unanimously recommended firm offer in an expeditious manner,’ it said.

It added that the bid would be structured as a takeover offer under the Companies Act 2006 but reserved the right to implement it as a scheme of arrangement under the same legislation.  

Blackstone warned that, having taken legal advice, both it and HSM were confident HSM could enforce the call option giving it the right to buy the 65,000-song portfolio for six months after a contract termination.   

‘Blackstone is seeking to find a positive outcome for all shareholders at a fair and reasonable value; however, Blackstone and HSM value the contractual protections under the IAA [investment advisory agreement] and will vigorously defend HSM’s rights pursuant to the option if required to do so,’ it said.  

Peel Hunt analyst Markuz Jaffe said in a note to investors: ‘A potential circa-6.9% improvement in the offer price is a material positive development in our view: not only improving the value on offer to SONG shareholders also via a potential clean exit for cash, but if successful, potentially removing any risk associated with the HSM call option frustrating another bidder’s attempt to acquire the company/portfolio.’

Blackstone is one of several parties that approached the company as it assessed its future after shareholders voted against its 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 Concord deal, which is said to have surprised Blackstone, the board said these other offers had been ‘less certain and at a lower value’ than the agreed Concord bid, which has the support of 23.6% of SONG shareholders.

HSM is chaired by SONG founder Merck Mercuriadis, who assembled the portfolio of 146 catalogues from artists such as the Red Hot Chili Peppers, Blondie and the Kaiser Chiefs in a costly £1.3bn acquisition spree.  

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 sack HSM after a series of valuation and legal disputes with it.

These culminated in the publication of a due diligence report by adviser Shot Tower three weeks ago, 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.

Concord’s offer was pitched at a 4.3% premium to the reduced operative net asset value and 32% above Wednesday’s closing share price.

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 on Friday the shares stood at a seven-month high.