It looks like all options are on the table at the beleaguered Hipgnosis Songs Fund Limited (LSE:SONG) after it launched a strategic review.
With that said, it’s not entirely clear exactly which options management is currently mulling for the royalties investment business, which owns the rights to music by Beyonce along with scores of other musicians.
The precipitant appears to have been the company's plans to sell a tranche of music rights for US$440 million in a bid to underline the nascent value of the fund (and to reduce debt).
A major stumbling block is the would-be buyer – Blackstone, which also co-owns the company that manages the London-listed SONG fund.
A call has gone out from major shareholders who want to veto this deal, citing a lack of transparency.
So, here we are on Thursday with a regulatory news statement from SONG saying it has initiated the review.
It also told investors that the board considered ending the contract with its current investment advisor, Hipgnosis Songs Management, led by founder Merck Mercuriadis, but decided against this course of action.
That’s because it turns out that sacking the advisor would trigger a default under SONG’s revolving credit facility.
In Thursday’s update, the investment company said: “The strategic review will look at all options to be considered for the future of the company with the aim of maximising value for shareholders including, among other things, a review of the future management arrangements of the company.”
Clearly, on the management side of things, it will have to think longer and harder.
In the meantime, shareholders face two votes: one to approve the disposal and another called a continuation resolution. The latter is normally a formality for funds that goes through on the nod every five years. However, for SONG the risk is potentially existential.
On the prospect of dissolution, investors seem to be split. For the risk-averse, the major downside of voting to 'discontinue' the fund is a potential bargain-basement sale of the music royalty assets amassed during the fund’s formative years.
In the meantime, the disposal to Blackstone could ease some of the debt worries that forced SONG to cancel dividend payments.
Major shareholder AVI wrote an open letter to shareholders this week saying "not one" of many major shareholders it has spoken to is in favour of an immediate sale of the portfolio and said if continuation is not approved, the fund could either stick with Mercuriadis's firm as manager but under different terms, change to a new manager, or delay the asset sale until a potentially better time.
Watch this space.