Concord acquires Hipgnosis

18 April 2024 - Press release

RECOMMENDED CASH OFFER FOR

HIPGNOSIS SONGS FUND LIMITED ("HIPGNOSIS")

BY

CONCORD CHORUS LIMITED ("BIDCO")

an entity indirectly controlled by Alchemy Copyrights, LLC, trading as Concord ("Concord")

to be implemented by means of a Court-sanctioned scheme of arrangement

under Part VIII of the Companies (Guernsey) Law, 2008 (as amended)

 

Summary

 

·             The board of directors of each of Bidco and Hipgnosis are pleased to announce that they have reached agreement on the terms of a recommended cash offer pursuant to which Bidco will acquire the entire issued and to be issued share capital of Hipgnosis (the "Acquisition").

·             It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part VIII of the Companies Law (the "Scheme").

·             Under the terms of the Acquisition, Scheme Shareholders will receive:

for each Scheme Share US$1.16 in cash (the "Cash Consideration").

In addition, if prior to the date falling five Business Days prior to the Court Hearing, the Investment Adviser, Hipgnosis (together with Hipgnosis Sub) and Bidco have entered into a tripartite agreement to terminate the Investment Advisory Agreement (the "IAA Termination Agreement") with effect from the Effective Date, Scheme Shareholders will be entitled to share in an aggregate additional consideration of up to US$25 million (the "Contingent Consideration"). The Contingent Consideration, if payable, will be equal to US$25 million less any amount payable to the Investment Adviser under the IAA Termination Agreement (the "Contingent Consideration Amount"). For the avoidance of doubt, such amount being reduced from the US$25 million would exclude any sums payable to the Investment Adviser in satisfaction of accrued fees and expenses due under the terms of the Investment Advisory Agreement, and any other fees and expenses incurred in relation to the IAA Termination Agreement. If the Contingent Consideration is payable, Scheme Shareholders will each receive for each Scheme Share held, the Contingent Consideration Amount divided by the number of Hipgnosis Shares in issue at the Scheme Voting Record Time rounded down, on a per share basis, to the nearest US$0.001. The maximum amount of Contingent Consideration a Scheme Shareholder may therefore receive is US$0.020 per Scheme Share.

·             The Cash Consideration values the entire issued and to be issued ordinary share capital of Hipgnosis at approximately US$1,402.7 million.

·             The Cash Consideration is equivalent to £0.932 per Share based on the Announcement Exchange Rate.

·             The Cash Consideration represents a premium of approximately:

o    32.2 per cent. to the Closing Price of £0.71 on 17 April 2024 (being the Latest Practicable Date);

o    36.5 per cent. to the six-month volume weighted average price per Hipgnosis Share of £0.68 to 17 April 2024 (being the Latest Practicable Date); and

o    4.3 per cent. to Hipgnosis' Adjusted 30 September 2023 Operative NAV per Hipgnosis Share of US$1.11.

Background to, and reasons for, the Acquisition

·             Concord has been an active acquirer of music rights and companies for over a decade, with a proven track record of strategic acquisitions and catalogue expansion. Since 2015, Concord has deployed more than US$2.8 billion of capital and completed more than 100 transactions across recorded music, music publishing and theatricals, as it seeks to grow its business and scale and leverage its operations.

·             Concord is a full-service music and theatrical rights company with an extensive new release artist and writer programme. Concord's global team provides artists, songwriters, playwrights and composers with creative and administrative support in sync, licensing, marketing, promotion and A&R.

·             Concord continues to be active in the market, looking at many potential transactions that meet its investment criteria. Concord and its management have followed the progression of Hipgnosis since IPO and believe that Hipgnosis' assets complement Concord's long-standing objective to acquire high quality and long-term music assets. Concord believes that the quality of Hipgnosis' assets are consistent with Concord's existing holdings, and creators connected to the rights acquired will benefit from the services of Concord's existing creative and administrative support teams globally.

·             Concord intends to implement the Acquisition with the support of its long-term financing partner, Apollo Global Management, Inc. via certain investment funds, accounts or entities managed, advised and/or affiliated with, and/or owned (in whole or in part) or controlled by, Apollo Capital Management, L.P. and/or one or more or its affiliates ("Apollo"). Apollo has committed to provide financing for the Acquisition in the form of debt capital, as well as a minority, indirect equity interest in the Concord-controlled Bidco.

·             Following completion of the Acquisition and a short transition period, it is expected that Concord will take over the management of Hipgnosis' assets, as is further set out in paragraph 10 of this Announcement.

Background to, and reasons for, the Hipgnosis Directors' recommendation

·             The Acquisition represents an attractive opportunity for Hipgnosis Shareholders to immediately realise their holding in Hipgnosis in cash for at least US$1.16 per Hipgnosis share, which represents a 32.2 per cent. premium to the closing share price (as at the Latest Practicable Date) and a 4.3 per cent. premium to the Adjusted 30 September 2023 Operative NAV.

·             Since the failed continuation resolution in October 2023, the Board has carefully assessed all options for the future of the Company with the aim of maximising value for shareholders and considers that in absence of the Acquisition, all alternative options carry significant risks, uncertainties and limitations.

·             In particular, the Board believes that the share price is unlikely to increase to reflect the Adjusted 30 September 2023 Operative NAV or the Cash Consideration in the medium term as a result of numerous Company-specific and certain market issues. The Board considers that, in order to achieve a material improvement in the share price, the Company needs to undergo, and evidence the benefits of, substantial financial and governance changes to improve its financial performance.

·             The Board recognises that the terms and timing achievable in any process to realise value from the Company's assets, either by way of a managed wind down or via the sale of the Company or its assets, are uncertain and may not occur on terms equal to or greater than the Adjusted 30 September 2023 Operative NAV or the Cash Consideration.

·             In arriving at its recommendation, the Board spoke to a number of potentially interested parties during the course of its strategic review. During this period, the Board received a number of indicative and preliminary proposals, including a number of earlier proposals from Concord, all of which were less certain, and at a lower value than US$1.16 (and the implied Sterling value as at the Latest Practicable Date).

·             Accordingly, following careful consideration, the Hipgnosis Board intends to unanimously recommend that Scheme Shareholders vote in favour of the Scheme at the Court Meeting and that Hipgnosis Shareholders vote in favour of the Resolution at the General Meeting.

Recommendation

·             The Hipgnosis Directors, who have been so advised by Singer Capital Markets as to the financial terms of the Acquisition, unanimously consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the Hipgnosis Directors, Singer Capital Markets has taken into account the commercial assessments of the Hipgnosis Directors. Singer Capital Markets is providing independent financial advice to the Hipgnosis Directors for the purposes of Rule 3 of the Takeover Code.

·             Accordingly, the Hipgnosis Directors intend to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting and that Hipgnosis Shareholders vote in favour of the Resolution at the General Meeting (or, in the event that the Acquisition is implemented by way of a Takeover Offer, that Hipgnosis Shareholders accept or procure acceptance of the Takeover Offer), and have irrevocably undertaken to do so in respect of their own beneficial holdings totalling in aggregate 327,796 Hipgnosis Shares, representing approximately 0.03 per cent. of the issued share capital of Hipgnosis as at the Latest Practicable Date.

Irrevocable Undertakings and Letters of Intent

·             In addition to the irrevocable undertakings given by the Hipgnosis Directors as set out above, Bidco has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting, and in favour of the Resolution to be proposed at the General Meeting (or, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure acceptance of the Takeover Offer), from Asset Value Investors Limited, CCLA Investment Management, Schroder & Co Limited, J O Hambro Capital Management Limited, Madison Avenue Partners, LP, Gresham House Asset Management Ltd, Hawksmoor Investment Management and Premier Fund Managers Limited in respect of, in aggregate, 284,917,641 Hipgnosis Shares representing approximately 23.56 per cent. of Hipgnosis' issued share capital as at the Latest Practicable Date.

·             Bidco has therefore received irrevocable undertakings from the Hipgnosis Directors and certain of the Hipgnosis Shareholders in respect of, in aggregate, 285,245,437 Hipgnosis Shares representing approximately 23.59 per cent. of Hipgnosis' issued share capital as at the Latest Practicable Date.

·             Bidco has also received a letter of intent to vote in favour of the Scheme at the Court Meeting, and in favour of the Resolution to be proposed at the General Meeting (or, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure acceptance of the Takeover Offer), from Investec Wealth & Investment Limited in respect of, in aggregate, 70,000,000 Hipgnosis Shares representing approximately 5.79 per cent. of Hipgnosis' issued share capital as at the Latest Practicable Date.

·             The total number of Hipgnosis Shares which are therefore subject to irrevocable undertakings or a letter of intent received by Bidco from Hipgnosis Shareholders is 355,245,437 Hipgnosis Shares, representing in aggregate approximately 29.38 per cent. of Hipgnosis' issued share capital as at the Latest Practicable Date. Further details of the irrevocable undertakings and letter of intent given to Bidco (and the circumstances in which such arrangements will cease to be binding or otherwise fall away) are set out in Appendix 3 to this Announcement.

Timetable and Conditions

·             It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement under Part VIII of the Companies Law. However, subject to the Panel's consent, Bidco reserves the right to elect to implement the Acquisition by way of a Takeover Offer.

·             The Acquisition will be put to Scheme Shareholders at the Court Meeting and to Hipgnosis Shareholders at the General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. of the voting rights of such Scheme Shareholders. In addition, the Resolution, a special resolution to authorise the Hipgnosis Directors to take all actions necessary for carrying the Scheme into effect and to amend the Hipgnosis Articles, must be passed by Hipgnosis Shareholders (either in person or by proxy) representing at least 75 per cent. of the votes cast on that resolution at the General Meeting.

·             The Acquisition will be made in accordance with the Takeover Code and on the terms and subject to the Conditions which are set out in Appendix 1 to this Announcement and on the further terms and conditions that will be set out in the Scheme Document. The Conditions include (amongst others) the receipt of relevant merger control clearances in the European Union.

·             It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and the General Meeting, together with the Forms of Proxy, will be published as soon as practicable and, in any event, within 28 days of this Announcement, unless Bidco and Hipgnosis otherwise agree, and the Panel consents, to a later date. It is expected that the Scheme will become Effective in the third quarter of this year, subject to the satisfaction of the Conditions and the further terms set out in Appendix 1 to this Announcement and to the full terms and conditions of the Acquisition which will be set out in the Scheme Document.

Commenting on the Acquisition, Robert Naylor, Chairman of Hipgnosis said:

"The Board is pleased to announce and unanimously recommend this US$1.4 billion Offer for Hipgnosis from Concord. The acquisition represents an attractive opportunity for our shareholders to immediately realise their holding at a premium, mitigating the risks we see ahead to achieving a material improvement in the share price. At the same time, the Board is confident that Concord, one of the world's leading independent music companies, is the right owner to take on the Hipgnosis catalogue and manage it in the interests of composers and performers. 

 

We would now encourage Hipgnosis Song Management, the Company's Investment Adviser and Blackstone, which is HSM's majority owner, through funds they manage and/or advise, to agree an orderly termination of the Investment Advisory Agreement. This would enable the payment of a larger consideration under the agreed transaction with Concord and bring to an end a period of uncertainty for all Hipgnosis stakeholders."

 

Commenting on the Acquisition, Bob Valentine, CEO of Concord said:

"We are pleased to be announcing this Offer for Hipgnosis, which has been unanimously recommended by its Board and has the support of 29.38 per cent. of their shareholders. We believe we are offering a fair price for Hipgnosis' catalogues and music assets, giving its shareholders the opportunity to realise their investment at a significant premium to the prevailing share price in cash.

 

Concord is the world's leading independent music company, with extensive experience in developing, producing, and marketing recordings and songs around the world in order to maximise their value. We believe we can integrate Hipgnosis' catalogues into our wider portfolio of 1.2 million songs in a way that will deliver benefits for composers, performers and all our stakeholders."

 

This summary should be read in conjunction with, and is subject to, the full text of this Announcement and its Appendices. The Acquisition will be subject to the Conditions and further terms set out in Appendix 1 to this Announcement and to the full terms and conditions which will be set out in the Scheme Document. Appendix 2 to this Announcement contains the sources of information and bases of calculation of certain information contained in this Announcement. Appendix 3 to this Announcement contains a summary of the irrevocable undertakings and letters of intent received in relation to the Acquisition. The valuation report for Hipgnosis' portfolio of investments as at 26 March 2024 is set out in Appendix 4 to this Announcement pursuant to Rule 29 of the Takeover Code. Appendix 5 to this Announcement contains definitions of certain expressions used in this summary and in this Announcement.