- Sale to reduce debt and boost shares
- Shares down 8% over the past year
- Share buyback programme worth $180 million
Shares in Hipgnosis Songs Fund (SONG) were up 1% in morning trading to 94p as the music royalty firm said it had agreed to sell 29 catalogues to Hipgnosis Songs Capital – a partnership between the investment manager and Blackstone.
The agreed sales consist of $440 million from the sale of 29 music catalogues and $25 million from selling non-core songs from the Kobalt acquisition in 2020.
Hipgnosis bought over 33,000 songs from Kobalt Music Copyrights for $322.9 million.
Over the past year the company’s shares have dropped over 8% as investors have fallen out of love with more blue-sky stock choices.
Why big discounts on investment trusts can sometimes but not always mean great bargains
The first disposal includes a ‘go-shop provision’ where the board is entitled to solicit alternative offers for the first disposal portfolio for a period of 40 days.
It is expected to realise a total net return of 44% over ‘a three-year weighted average life of ownership.’
Hipgnosis Songs Fund will retain 81% of its existing portfolio by fair value with an increased focus on older vintages.
‘The remaining portfolio will have an increased concentration of culturally important and successful songs, with the company retaining an interest in 47 of Rolling Stone's 500 Greatest Songs of All Time and 85 Spotify Billions Club,’ the company said in a statement.
Hipgnosis Songs Fund which owns the rights to songs by musicians such as Red Hot Chili Peppers, Neil Young and Blondie will retain ownership of seven of its ten largest catalogues.
This move by Hipgnosis comes days after Round Hill Music Royalty Fund (RHM) agreed a $1.15 per share cash offer from Alchemy Copyrights.
As well as using the proceeds of the sales to fund the share buyback programme, the company will also repay $250 million drawn under Hipgnosis’ revolving credit facility.
EXPERT VIEW
This announcement has produced a mixed reaction from analysts.
Liberum has viewed the deal as ‘a welcome initiative to try reduce the discount to net asset value (NAV).’
However: ‘The agreed price for the first portfolio is 17.5% below current carrying NAV, raising additional concerns about the valuation of the remaining catalogues in the portfolio.
‘If the company has likely handpicked its assets in the first portfolio to get the maximum price available, why does it sell the portfolio at such a discount? Does that mean the fair value of the remaining assets is even more below the carrying NAV than the assets in this portfolio?’
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Disclaimer: The author (Sabuhi Gard) owns shares in Hipgnosis Songs Fund.
