UK music fund may walk off stage without encore

Heart of gold. Neil Young’s music may have found a new home. Hipgnosis Songs Fund, the struggling UK music rights company which owns the Canadian-American songwriter’s catalogue, on Thursday accepted a $1.4 billion takeover bid by U.S. rival Concord Chorus, legally known as Alchemy Copyrights. The 32% premium pitches the collection of tunes by Shakira, Blondie and the Red Hot Chili Peppers at slightly above their shrunken net asset value. Dissatisfied shareholders may not get an encore.

The era of higher-for-longer interest rates has been tough on the financial appeal of music rights, shrinking the net present value of future cash flows from catalogues often stretching decades into the future. Hipgnosis reckons a 0.5% increase in the discount rate used in those calculations knocks 8% off its worth. As recently as September 2023 the company estimated its net asset value at $2.5 billion – 80% more than the current bid. That was revised down following an independent review.

But Concord will also inherit a tricky situation stemming from months of bad blood between Hipgnosis and the company that manages the actual artists’ rights. This business, which also operates under the Hipgnosis name, is controlled by U.S. private equity giant Blackstone in partnership with founder Merck Mercuriadis, Elton John’s former manager.

The two sides have traded barbs since Hipgnosis shareholders late last year turned down a deal that would have seen the management company acquire some assets from the company it advises for a $440 million price. Since then, the parties have disagreed on everything from the valuation of the company’s portfolio to the management vehicle’s accounting practices.

A further complication is that the Blackstone-owned management company has an option to buy the Hipgnosis assets if it is fired as an investment adviser, but must offer a higher price than that paid by an independent bidder. Concord, which has its own organisation to manage the music rights, does not need an investment adviser. If the two sides settle the dispute before the deal closes, Hipgnosis shareholders get an extra $25 million.

Hipgnosis investors, whose shares had sunk 40% in the two years before the Concord offer, may not get an encore. For now it looks like the only way is up, at last.