Hipgnosis Songs Fund says adviser refuses to drop call option

(Reuters) -Hipgnosis Songs Fund (HSF), which holds the rights to the work of artists ranging from Shakira to Neil Young, said on Tuesday its investment adviser has refused to drop a call option that is complicating its bid to sell off some of its music.

The adviser, Hipgnosis Songs Management (HSM), is run by the fund’s founder Merck Mercuriadis and backed by private equity firm Blackstone. The call option gives it the right to purchase the fund’s music portfolio if and when its agreement with the fund is terminated.

HSF has said the option is a “structural conflict between the interests of our shareholders and the investment adviser” and a deterrent to potential bidders for some of its music catalogues.

HSF said its new board was also investigating whether the 29 music artist catalogues proposed in a sale to Hipgnosis Songs Capital, also managed by HSM, was “cherry picked”.

It said independent research reports had shown these were growing at “materially higher rates to the overall portfolio”, adding it was looking at whether that fact was fully disclosed to the previous board in investment papers, which included HSM’s recommendation on the deal.

Shareholders in October rejected that proposed $440 million deal citing a lack of an “up-to-date” valuation.

HSM did not immediately respond to a Reuters request for comment.

In October shareholders also revolted against the HSF board, forcing a revamp and a strategic review.

New board chairman Robert Naylor joined in November from recently acquired Round Hill Music.

HSF has called an extraordinary general meeting on Feb. 7 to vote on a proposal to enshrine the payment of a fee of up to 20 million pounds ($25.5 million), as a form of “cost protection” to prospective bidders who may be deterred by HSM’s call option.

($1 = 0.7848 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; editing by Varun H K and Jason Neely)