Hipgnosis shareholders have voted against the board’s continuation as an investment trust.
The vote, which was required under regulatory conditions for investment trusts, took place during a period of turbulence for Hipgnosis. 83.2% of shareholders voted against at today's AGM and EGM (Extraordinary General Meeting).
Such a vote would normally be a formality. It means the board will need to put forward proposals to reorganise the fund in the next six months, which could range from complete reconstruction to winding up of the company. The chair of Hipgnosis, Andrew Sutch, will be required to step down immediately.
A share buy back plan had been announced, funded by a catalogue sale worth $440m to investment partner Blackstone. Following the vote, that catalogue sale will not go ahead.
The shock development with Hipgnosis could also impact the future potential for song rights as publicly listed investments.
In a statement to the Stock Exchange, Hipgnosis' board said: "As a result of Resolution 12 (the "Continuation Resolution") not passing the board will, in accordance with the company's prospectus, put forward proposals for the reconstruction, reorganisation or winding-up of the company to shareholders for their approval within six months following the date of today's AGM. These proposals may or may not involve winding-up the company or liquidating all or part of the company's existing portfolio of investments."
Sylvia Coleman, senior independent director of Hipgnosis Songs Fund, said: "The board and the investment adviser have each engaged widely with investors over recent months. While shareholders have not supported our proposed transaction or the continuation vote, it is clear that they share our belief in the inherent quality and potential of these assets. The directors are now expediting the appointment of a new chair who will drive the strategic review we have already announced, with a clear focus on delivering improved shareholder value."
Hipgnosis Songs Fund was established as an investment trust by Merck Mercuriadis in 2018 and listed on the London Stock Exchange. It has been one of the key players in the catalogue boom, snapping up rights to songs recorded by artists including Beyonce, Shakira, Blondie, Neil Young, Fleetwood Mac, Red Hot Chili Peppers, Journey, Barry Manilow, and many more.
In a statement following the vote, Merck Mercuriadis said: "Today’s Hipgnosis Songs Fund AGM marks an opportunity to reset and focus on the future. Our conversations with shareholders have revealed a consensus that they are enthusiastic about the quality of the company’s iconic portfolio of songs, however it is also clear that they are asking for change and we respect that feedback. Hipgnosis Song Management’s new management team and I have already started taking the relevant necessary action to meet the expectations of shareholders.
“Our commitment to the company’s shareholders remains absolute and we look forward to working with a new chair and reconstituted board during this period to ensure that the Hipgnosis Songs Fund delivers for its shareholders. During this process, shareholders can be certain that Hipgnosis Song Management will continue to manage the songs with the greatest duty of care as always.
“Finally, I would like to thank Andrew Sutch, Andrew Wilkinson and Paul Burger for their important contributions to the company over the last almost six years."
According to the independent valuer, the Hipgnosis portfolio of copyrights is valued at $2.8 billion.
However, shares have fallen sharply in the company, which has faced higher interest rate payments.
Last week, Hipgnosis pulled a planned dividend as a result of lower US royalties being forecast.
Ahead of the crunch vote, Andrew Wilkinson and Paul Burger resigned as non-executive directors following pressure from shareholders.
Andrew Sutch, chair of Hipgnosis Songs Fund, said: "On behalf of the board, I would like to thank Andrew and Paul for their commitment and important contribution to the company over the past five years."
Sutch had already announced his plans to step down as chair ahead of the vote, once a suitable replacement was found or by 2024.