Following the offer for Hipgnosis Songs Fund Limited (LSE:SONG) from Blackstone, the alternative asset manager's own Hipgnosis Song Management (HSM) arm made a "curious" statement, according to analysts.
In the statement, an HSM spokesman said that while it has been repeatedly blamed for many issues affecting the London-listed music rights trust, these were "not HSM’s responsibility" under the terms of the investment advisory agreement (IAA).
Having sought to address this in private with the SONG's board, following the agreed $1.4 billion bid from Nashville's Concord last week and the potential $1.5 billion offer from Blackstone yesterday, HSM went public that it has received legal advice that the investment trust "has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the IAA".
It added that if SONG tries to end its contract or hand management responsibilities to a third party, HSM and Blackstone are "fully resolved" to protect their rights under the IAA, including exercising a call option to acquire all SONG’s assets.
In a note shared today, Stifel analyst Sachin Saggar said: "If you were confident of the legal status of your matching right, why would you put forward a proposal that is c.7% higher than Concord's offer at 100p?
"Surely, the best thing to do would be to enforce your right and save yourself and your clients the additional c.$100m."
Saggar said his and his colleagues' view is that "instead of 'scaring' the buyer, this RNS may have the opposite effect of emboldening Concord as it highlights Blackstone is uncertain.
"If we were Concord, it would be tempting to pay up for this portfolio as this could mean the difference between having a deep-pocketed future competitor that bids on future catalogues or not."
If HSM is unsuccessful in retaining the Hipgnosis Songs Fund portfolio, the Stifel team noted that AUM will be cut by more than 75%.
This will at least, the analyst suggested, "cause a re-think of whether they can remain in the sector - i.e the importance of the portfolio to Blackstone is far greater than to Concord and so there is a risk that Concord overpays to push out a future rival and takes it to the wire".
Overall, Saggar conjectured that the offers are "at the margin of a price that seems sensible for this portfolio", given the annual revenue of circa $120 million on a portfolio value of around $2.1 billion implies a yield of under 6% before operating costs.
"We think this situation is at risk of becoming about something else, rather than an acquisition purely based on economic terms."
Saggar said he believes the source of funds for Blackstone is its Tactical Opportunities Fund, which has a mandate focused on "dislocations".
Overall, he said the situation "caps an awkward period for Blackstone as they have had multiple chances to secure their future in the music sector. They could have fixed the listed fund given there was strong appetite by listed shareholders to see it survive, they could have bid many months ago to avoid 'public commentary' and finally yesterday's RNS may have the opposite impact of their intention."