Asset Value Investors (AVI) has urged shareholders in Hipgnosis Songs Fund (Song) to vote against both the proposed sale of a portion of its portfolio and against continuation.
AVI executive director Tom Treanor labelled the proposed sale of a fifth of Song’s portfolio to a private vehicle as a “truly dreadful deal for shareholders”.
He said: “We are wholly opposed to the proposed transaction and will be voting against it. We believe an overwhelming majority of shareholders share our views. We note the company’s share price is down by 29% since the deal was announced, a period over which equity markets are essentially flat.
“This is a transaction the company did not need to do. Shareholder calls for sales to validate the net asset value (NAV) and raise cash for share repurchases have mutated, via a flawed process, into a deeply discounted transaction that permanently destroys shareholder value and potentially impairs the NAV going forward,” Treanor added.
AVI manages a 5% stake in Song on behalf of institutional clients. The music royalty investment trust faces the two votes at an AGM and EGM on 26 October.
The trust is trading at a discount in excess of 50% and yesterday scrapped its announced interim dividend after a revision in expected retroactive royalty payments.
See also: Hipgnosis Songs scraps dividend after hit to expected royalty payments
Continuation vote
On the upcoming votes, AVI said it intends to vote against both the continuation resolution.
In a letter to Song shareholders, Treanor said: “We are concerned that a dangerous misleading narrative has been allowed to develop as to what happens if the continuation resolution is not approved by shareholders.
“It is emphatically NOT the case that it would automatically trigger a wind-up of the company, any asset sales, nor any course of action whatsoever other than requiring the board to consult with shareholders on the future direction of the company.
“The eventual outcome could be continuing with the same manager under different terms, continuing with a new manager, and/or exploring an asset sale at a time of shareholders’ choosing.”
AVI argued a vote against continuation would provide a new board with a blank canvas to move the trust forward.
“On the other hand, we fear a vote in favour of continuation provides the current Board and Manager with an implicit endorsement of them and the strategy to date,” Treanor added.
“While we were pleased to see the board announce some concessions on 28 September 2023, we are perplexed by the stated intention to serve notice on the manager if the average discount to NAV over January 2025 exceeds 10%.
“Firstly, we see no plausible scenario in which the shares are trading at such a tight discount level by that date given the starting point, so the statement can effectively be simplified to saying that the board intend to serve notice in January 2025.
“This then begs the question as to why the board does not serve protective notice sooner? This notice could be revoked if the discount does meet the January 2025 test whereas, under the board’s approach, notice will be served in January 2025 yet it will be a further twelve months until the manager has served out their notice period. This will mean shareholders incur an additional year of fees – £8m at the current market capitalisation.”
See also: AVI appoints Premier Miton’s Nick Greenwood as MIGO Opportunities trust transfers
