Jefferies: Potential Hipgnosis Songs bidders may be dissuaded by number of impediments
The Hipgnosis Songs fund is trading at a similar discount to RHM and is approaching its five-year continuation vote at the end of this month.
On Friday (8 September), the board of the Round Hill Music Royalty fund (RHM) agreed to a $468.8m takeover offer by Concord, representing a discount of 11.5% to NAV and a 67% premium to the $0.69 closing share price on 7 September.
As shareholders and analysts digested the news, attention drifted to the Hipgnosis Songs fund, which is trading at a similar discount and will hold its five-year continuation vote at the end of this month.
In a research note on Sunday (10 September), Jefferies analysts Matthew Hose and Fiona Huang said the «inevitable question» is whether SONG could also be subject to a cash offer and, if so, at what price.
Round Hill Music Royalty fund agrees to $470m takeover offer
The analysts said that while SONG may appeal to institutional investors looking to access the music royalty space, given the presence of several 'iconic' artists within its portfolio, they see a number of impediments to a bid.
Its much larger size is one such issue, they argued, as the $2.7bn portfolio valuation and market cap of c.£1bn would «easily represent» the largest ever music catalogue transaction, if sold.
Another impediment is portfolio maturity, given SONG has a number of relatively new catalogues still subject to a natural initial decay in revenue, which Hose and Huang said are more difficult to value for the purpose of a bid.
However, the analysts pointed to the manager's termination option rights, which are much more likely to be exercised in the case of SONG, as the most pertinent impediment to a bid.
Hipgnosis Songs considers strategic options ahead of September
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