The struggling music royalties business Hipgnosis has launched a strategic review that could lead to the ousting of its founder, Merck Mercuriadis, the former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé.
London-listed Hipgnosis Songs Fund, which is managed by Mercuriadis and overseen by an independent board of directors, said its review was designed to create value for its investors, but will not include exploring a sale of the £900m company.
“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,” the company said.
The board said it had looked at trying to make changes to the investment advisory agreement with Mercuriadis.
The company said it had considered serving notice on Mercuriadis to terminate the agreement, but without a new investment adviser approved by the company’s lenders ready to take over, Hipgnosis would breach the terms of its debt facility.
The board said it had asked Meruriadis to remove a clause in its investment advisory agreement that allows him to buy Hipgnosis’s entire portfolio of music rights if his contract is terminated. Mercuriadis rejected the proposal to change the arrangement, the company said.
The company is also on the hunt for a new chair before the imminent retirement of Andrew Sutch after mounting shareholder unrest at the running of the company.
The once high-flying company was founded by Mercuriadis in 2018, and spent billions of pounds buying catalogues in an attempt to cash in on what it viewed were assets undervalued in the streaming era. It acquired rights to music from artists including Barry Manilow, Blondie, the Red Hot Chili Peppers and Neil Young.
Mercuriadis had argued that investing in music royalties was as valuable as oil or gold because of supposedly predictable and reliable income streams.
However, the Hipgnosis share price has crumbled from a high of 130p last year to a record low of 65p earlier this week. The stock rose 2% to 74p in early trading on Thursday.
The strategic review comes before a critical shareholder vote next week that will determine the future of the company, which earns royalties every time one of the tens of thousands of songs to which it owns the rights is played.
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Next Thursday, shareholders will be asked to approve a continuation of the investment trust for a further five years.
Some shareholders are agitating for a vote against continuation as they believe it will give more power to investors to restructure the business.
However, some analysts have said such a vote could result in the fund being liquidated entirely.
Earlier this month, investors criticised a proposal to sell, at a considerable discount, almost a fifth of the Hipgnosis portfolio for $440m (£363m) to a Blackstone fund, which is also run by Mercuriadis. The deal will be also be subject to a shareholder vote next week.
The board reiterated that it recommends investors vote in favour of continuation and the sale, although it added that a process to seek a “potential superior offer remains ongoing”, and will undertake a further round talks with shareholders ahead before the meeting.