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 majority investor in 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 bid having seen its offer trumped by 7%.

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 shareholders, although they are released from their commitmeent if a 10% higher bid is made.

Investors were delighted Concord had not been discouraged by the presence of a call option giving SONG fund manager Hipgnosis Song Management (HSM) the right to buy the portfolio of over 65,000 songs within six months of having its contract terminated. This has cast a potentially long shadow over other bidders as the six-month window can occur after a 12-month notice period, leaving any acquisition open to challenge up to a year to 18 months after it is agreed.  

Earlier this year, SONG’s board, chaired by Robert Naylor, sought a workaround to this, gaining shareholder approval for a £20m incentive fee to be paid to any unsuccessful bidder, which Stifel analysts believed could go to Concord if Blackstone prevailed.  

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

Since flotation they have made a total return of 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 HSM’s call option could still deter Concord and Apollo from escalating the bid battle.

‘Back off Concord’

HSM rammed home this message this afternoon, expanding on an earlier warning by Blackstone about their confidence that the contractual right to purchase the SONG portfolio was legally watertight.

Relations between the fund manager and the board have deteriorated this year over a series of disputes relating to valuations and litigation against HSM’s founder and chair Merck Mercuriadis from his former business associates.

There has constant speculation that the board could sack HSM for breach of contract which would nullify the call option. The prospect of this increased three weeks ago with the publication of a scorching report by adviser Shot Tower. This 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.

In its statement, HSM claimed it had been repeatedly blamed for many issues affecting the investment company that were not its responsibility under the terms of the investment advisory agreement (IAA).

‘We have previously sought to address this in private with the company’s board as we felt it was in the best interests of shareholders to minimise public commentary.  Given recent developments we feel it is now important to make our position clear.

‘Based on extensive legal advice we are confident that the company has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the IAA. HSM has explained this in detailed legal correspondence with the company. The company has not responded to HSM on the legal arguments it has presented,’ it stated.

One investor, who did not want to be identified, said Blackstone and HSM were attempting to intimidate Concord and Apollo with a ‘back off!’ message.

However, the shareholder was hopeful Concord would see this as bluff and come back with a higher offer. Having entered the bidding, the investor believed Concord would be confident that SONG’s board had grounds to terminate HSM’s contract.

The only question is, having apparently started its bidding at $1 a share, how high is Concord prepared to go?

Firm up your offer, Blackstone told

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 ‘announce a firm intention to make an offer, as soon as possible’. As 51% owner of HSM, the portfolio’s manager, it is not clear how much more due diligence the group needs to do.

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

Blackstone made three previous offers during the Guernsey closed-end fund’s strategic review launched in response to 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.

Offer or scheme

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.

An offer requires only a simple majority to succeed but runs the risk of leaving a rump of minority investors who can only be compulsorily bought out when the acquirer reaches 90%.

A scheme of arrangement has a higher hurdle, requiring 75% shareholder approval, but removes any ‘holdout’ minority investors once that is secured.  

Blackstone added that, having taken legal advice, both it and HSM were confident HSM could enforce the call option giving it the six-month right to buy the portfolio of 146 catalogues bought from artists such as the Red Hot Chili Peppers, Blondie and the Kaiser Chiefs in a £1.3bn spending spree.   

‘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 and will vigorously defend HSM’s rights pursuant to the option if required to do so,’ it said.  

Blackstone surprised

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. 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, which is where they remain even after today’s spike.