Hipgnosis Songs Fund reported a 9.2% decrease in net asset value per share as tension rises in the royalty fund company. The board and Hipgnosis Song Management, led by Merck Mercuriadis, have been recently sparring over catalog valuations.
Board chair Robert Naylor publicly addressed the friction, highlighting the board’s attempt to increase transparency for shareholders, which was met with resistance from Hipgnosis Song Management due to confidentiality agreements. Naylor has called for an unreserved opinion on the company’s catalog valuation to clarify the situation for investors.
Hipgnosis owns the majority rights share in the catalogs of Neil Young, Red Hot Chili Peppers, Lindsay Buckingham, Journey, Mark Ronson, and Shakira, among numerous others.
Amidst this backdrop, the fund’s share price experienced a slight decline, and the company witnessed a 26.9% decrease in gross revenue from continuing operations, alongside a 29.7% drop in net revenue. After adjusting for a significant reversal of accrued royalties, the net revenue exhibited a 14% increase. Until now, the company’s valuation has consistently surpassed market estimates and share price valuations, leading to recent catalog sales conducted at values below their listed net asset values.
The company is currently undergoing a strategic review, with Naylor expressing contentment with the progress and the potential for future value delivery to shareholders. However, he also acknowledged issues in the financial reporting and control processes that have led to a suspension of dividend distribution for the time being to maintain compliance with banking covenants.
In response to a shareholder vote, the fund has seen a shift in its board composition, with Naylor appointed as the new chair and the addition of industry veterans Francis Keeling and Christopher Mills. With Shot Tower Capital appointed as the lead advisor, the fund aims to conduct thorough due diligence on its catalog. Despite the internal challenges, Naylor has assured that corrective measures are underway, although the dividend remains suspended for the remainder of the year.
