HIPGNOSIS, THE CONTINUATION VOTE AND OTHER MERCK-Y MATTERS

New details are emerging ahead of this week’s Hipgnosis Songs Fund shareholders meeting amid conversations about share prices, current valuation and contested reporting on the fund’s ongoing advisory relationship with the Merck Mercuriadis-led Hipgnosis Songs Management team and Blackstone.

According to published reports, Mercuriadis has a previously unreported call option to buy Hipgnosis Songs Fund’s assets if Hipgnosis Songs Management is terminated as HSF’s investment adviser. In the highly unlikely event that comes to pass, Mercuriadis would ultimately be in full control of the sizable assets he previously acquired for HSF, providing shareholders with the payout they may desire.

The continuation vote, we're informed by people who understand this stuff, isn't a reflection of the company's performance and is standard for all investment trusts. The purpose is to allow shareholders to decide (regardless of success) if they would like the company to continue or if they would like to take their money and put it elsewhere. “Discontinuation,” which we understand is likely, also does not mean that the company will not continue; it just provides for a six-month period in which all involved decide on how to move forward. The probable scenario, we hear, is that Merck and his shareholders will ultimately continue but with an entirely new board. The HSF Board, which had asked HSM to remove the call option clause from its agreement (which request HSM declined) will likely be voted out at the forthcoming annual general meeting (AGM) next week.

Now the big question is, if by chance HSM were terminated, at what valuation such a payout would be. Were it to be tied to the fund’s current value, HSM would wind up acquiring it at a substantial bargain, but speculation is that the number could be based on a multiple of NPS (net publisher's share), which would protect shareholders at some level.

In an effort to boost stock prices, Mercuriadis and Blackstone’s Hipgnosis Songs Capital last month made an offer, following consultation with shareholders, to buy 29 catalogs from HSF for $440m. The hope was that the transaction would provide the funds to buy back shares and reduce debt as well establish a new benchmark for the company’s Net Asset Value (NAV) by basing it on a concrete transaction rather than an institutional appraisal.

Shareholders will vote on that offer at the 10/26 EGM (extraordinary general meeting) and AGM, but the expectation is that shareholders will decline, as they believe they should adhere to Merck’s “buy and hold” investment policy per the company’s prospectus. It will also determine the aforementioned continuation vote on whether to continue as a U.K.-listed company in its current form. Execs and industry chatter seem to align on the idea that, whatever happens, HSF is Merck’s for taking and that the commitment he made to songwriters and shareholders alike will always be honored.

In other financial news, we found almost enough change in the couch cushions to buy more candy corn.