Blackstone Europe, on the back of the recent firm offer by Concord Chorus for Hipgnosis’s (SONG) assets, has confirmed that it has made a series of proposals regarding a possible offer for the entire issued and to be issued share capital of Hipgnosis.
Blackstone has announced that it has made a fourth proposal to acquire SONG’s assets, at a price of $1.24 per share, higher than the $1.16 offered by Concord.
There are two key points worth noting: the first is that Blackstone is yet to make a ‘firm’ offer for the trust which would be actionable by the board, though it is working to make it so. However the board has indicated that it would be mindful to recommend Blackstone’s proposal to shareholders upon it making a firm offer (at proposed price). The ball is in Blackstone’s court to make a firm offer, and shareholders will need to sit tight until then.
The second issue is that under the current investment advisory agreement, SONG’s investment adviser (a portfolio company of Blackstone) has the option to purchase from SONG its entire portfolio of songs held as at the date which the advisory contract is terminated. The advisor has six months from the termination date to take up this option. Blackstone has outlined its intention to defend the rights of the investment adviser within the scope of this option.
[QD comment : “Following the announcement of a firm offer from Concord to buy Hipgnosis Songs Fund (announced on Thursday 18 April), a response from Blackstone was not unexpected, with some commentators even arguing last week that it could spark a bidding war for control of the SONG’s portfolio. However, today’s announcement suggests that this process is going to be more than just a simple game of tug-of-war.
We knew that Blackstone was already engaging in discussions to purchase SONG’s assets, although it was playing its cards close to its chest, and it seems that Concord’s bid forced its hand to make a more public statement. However, we would draw investors’ attention to the fact that this deal is not yet ‘firm’ and, while this will probably occur in due course, there remains the thorny issue of the manager’s option that gives it the right to purchase the portfolio for up to six months after its management agreement is terminated.
We have long said that the fact this option even exists acts as a disincentive for other potential bidders to engage in due diligence as they could incur the cost of this and then have the portfolio snatched away from them at the last moment. As such, the option could limit SONG’s ability to get the best price for its portfolio.
The announcement this morning contains a reminder that Hipgnosis Songs Management (which is backed by Blackstone) has this termination option, and says that “Blackstone and HSM value the contractual protections under the [investment management agreement] and will vigorously defend HSM’s rights pursuant to the Option if required to do so”.
Perhaps not surprisingly, Hipgnosis’s board has signalled that it would back a firm bid from Blackstone at US$1.24 (the price in its fourth proposal) and so it now seems likely that this will be the takeover price for SONG. Concord’s offer seems to have improved the price on offer from Blackstone but, beyond this, we doubt that any other party would want to get into a more significant bidding war with Blackstone, given how heavily the odds are stacked in its favour.”]