A generation of music stars are retiring, which means a new era for savvy investors to take advantage of lucrative royalties. Now, however, those who have spent billions on the rights to songs by some of the world’s biggest pop stars are at risk of being shut down.
Hipgnosis, the London-listed company that buys music rights to the likes of Beyoncé and Neil Young, is facing the wrath of investors after a tumultuous year — —This could be a palace coup.
according to document Shareholders chose to reject the company’s request for a new five-year authorization, according to documents filed at the investment fund’s latest annual shareholder meeting on Thursday. Hipgnosis now has six months to reorganize or face bankruptcy.
Investors also rejected a proposed $440 million sale of 29 music catalogs, including songs by Shakira and Barry Manilow, to investment group Blackstone.The deal, aimed at shoring up its share price, was not beaten out by other suitors during a 40-day roadshow, with several shareholders Tell Financial Times The $440 million price tag is clearly too low.
Sylvia Coleman, senior independent director of Hipgnosis, said: “While shareholders do not support our proposed transaction or proceed with their vote, it is clear that they share our belief in the inherent quality and potential of these assets.
“The directors are now accelerating the appointment of a new chairman who will drive our announced strategic review with a clear focus on improving shareholder value.”
On the eve of the vote, the company under pressure Major shareholder Asset Value Investors (AVI) urged shareholders to reject the company’s latest proposal. The company said there is “a surprising amount of trapped value” in Hipgnosis shares.
It’s the latest development in a whirlwind month for the once-promising song fund.
group tell investors In early October, the company scrapped plans to pay an interim dividend after Citrin Cooperman, the company’s portfolio valuer, significantly lowered its expectations for past royalty payments.
Between 2018 and 2022, Hipgnosis expects to earn $9.9 million in royalties from its catalog, down from expectations of $21.7 million.
Investors also voted to oust Hipgnosis chairman Andrew Sutch. He has chosen to resign in 2024.
Music assets lose their luster
Hipgnosis, founded in 2018 by chief executive Mark Mercuriadis and Chic frontman Nile Rodgers, has shaken up the music industry with its ambitious plan to buy the back catalog of famous artists and sell the rights to investors. The group generates most of its revenue from streaming.
The setup looks like a perfect match between musicians keen to cash in on their work all at once, with investors receiving a steady stream of income as listeners top up on platforms like Spotify and Apple Music.
Investment funds are receiving huge investments as fees demanded by artists for their work soar.Catalog deals include Justin Bieber archive reportedly worth $200 billion and $150 million deal Half of Neil Young’s investment portfolio soon followed.
However, rising interest rates have pushed up the discount rates used to value future assets, devaluing Hipnosis’s portfolio. Higher interest rates also make other asset classes such as government bonds more attractive.
Hipgnosis’ music catalog is worth approximately $2.1 billion, according to the company Latest annual report.However, the company’s current market capitalization is just £897 million ($1.1 billion). Shares plummeted last September after the company tried to refinance its massive debt. The company’s current market capitalization is 40% below its November 2021 peak.
Although Hipgnosis’s prospects look bleak, investors still see value in the royalty-based asset class. In its letter to shareholders, AVI noted the strong performance of the Round Hill Music Royalty Fund, which owns rights to artists including Bruno Mars and Bonnie Tyler.
In September, the fund agree to be acquired Los Angeles-based Alchemy Media acquired the company for $469 million, a 67% premium to its stock price.
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