Yesterday (April 24), we learned of the latest chapter in the takeover saga surrounding UK-listed Hipgnosis Songs Fund.
Concord launched a USD $1.511 billion bid for the UK-listed company’s assets, at $1.25 per share. That bid very slightly topped a recent $1.50 billion takeover proposal from Blackstone, which valued HSF at $1.24 per share.
Concord’s new bid comes with a caveat: If it’s successful in acquiring HSF’s assets, the US-based company says it intends to sell around 30% of the HSF portfolio within 18 to 24 months of closing the transaction.
Concord, then, is back in the driving seat of the battle to buy Hipgnosis Songs Fund… for now.
Today (April 25), Blackstone issued a terse-but-fascinating comment to the markets, and specifically to HSF shareholders, in the wake of Concord’s new offer.
It reads: “Blackstone Europe LLP notes the announcement from Concord Chorus Limited (“Concord Bidco“) regarding its recommended cash offer for Hipgnosis at a price of US$1.25 per share (the “Concord Offer”).
“Blackstone strongly advises Hipgnosis shareholders to take no action and is considering its options. A further announcement will be made in due course.”
Aka: Sit tight, we’ll be right back with you.
As noted by Blackstone’s statement, Concord’s $1.511 billion bid is being made via Concord Chorus Ltd., a vehicle partly funded by debt financing from Apollo Global Management.
The buyer of Hipgnosis Songs Fund’s assets will ultimately be decided at a meeting of the company’s shareholders scheduled for June 10.
So why is Blackstone telling HSF shareholders to “take no action” with nearly two months to go until that date?
Because of something, in financial/M&A-speak, called “irrevocable undertakings”.
This is where shareholders of a company pledge to accept a bid for that business ahead of a future date when said bid will officially become voted upon.
In the case of Concord’s latest offer for HSF, Concord said yesterday (April 24) that it now has “irrevocable” commitments (and/or “letters or intent”) from HSF shareholders covering approximately 31.27% of HSF’s share capital.
There are conditions under which these “irrevocables” can be broken, however. In the case of the Concord-HSF bid, the “irrevocables” agreed to by most shareholders can be undone by a firm offer from a rival party that is a minimum of 10% higher than Concord’s bid.
In the case of a handful of key HSF investors (namely Madison Avenue Partners LP , KL Special Opportunities Master Fund Ltd, and KL UCITS ICAV – KL Event Driven UCITS Fund), their “irrevocables” would be broken by a bid that is a minimum of 5% higher than Concord’s offer.
As things stand, “irrevocables”-wise, just over two-thirds of HSF investors as yet officially undecided on whether to give Concord’s bid the thumbs up.
These are the folks that Blackstone is today “strongly” encouraging to take “no action”.
HSF shareholders who have committed to “irrevocables” to accept Concord’s latest offer include all board members at HSF, who are unanimously recommending Concord’s offer to their fellow stockholders.
Blackstone’s $1.50 billion approach for HSF, announced on Saturday (April 20), was positioned as a “proposal” rather than a “firm offer” – potentially indicating that Blackstone was waiting for the HSF board’s response and/or is in the process of organizing financing for a fully-fledged bid.
Blackstone is the majority-owner of Hipgnosis Song Management, which has been the investment adviser of Hipgnosis Songs Fund since the latter company floated on the London Stock Exchange in 2018.
Hipgnosis Song Management holds a “call option” which dictates that it is guaranteed the option to buy Hipgnosis Songs Fund’s portfolio – at price set by pre-agreed conditions – should it ever be fired as HSF’s investment adviser.
On Monday (April 22), Hipgnosis Song Management issued a statement noting that it had taken legal advice over its ‘call option’ and believed it to be unbreakable by HSF.
That statement read: “Based on extensive legal advice we are confident that [HSF] has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the Investment Advisory Agreement [IAA]. HSM has explained this in detailed legal correspondence with [HSF]. [HSF] has not responded to HSM on the legal arguments it has presented.
“HSM will vigorously protect its interests should [HSF] purport to terminate the IAA. We will use all means necessary to defend our contractual position and interests. It is important that shareholders, songwriters and artists understand that HSM has acted appropriately and professionally in our role as Investment Advisor and fully in accordance with the IAA.
“To be clear, were [HSF] to purport to terminate the IAA and/or hand HSM’s responsibilities under the IAA to a third party, HSM and its majority shareholder are fully resolved to protect all of our rights under the IAA, including the right to exercise the call option to acquire [HSF’s] assets.”Music Business Worldwide