Concord and Blackstone are in a bidding war to acquire the equity capital of Hipgnosis Songs Fund (HSF). On Wednesday (April 24), Concord offered $1.25 per share for HSF's equity, beating Blackstone's offer of $1.24 per share (GBP 1.00), or $1.5 billion, which announced on Sunday (April 21). In response to Concord's latest bid, Blackstone said on Thursday (April 25) it was “considering its options”.
Concord had opened with an offer of 0.93 pounds ($1.14) per share, equal to $1.4 billion, on April 18.
Some investors are betting that the offer will be well above current offers. On Tuesday, HSF shares rose as much as 1.03 pounds ($1.28) respectively, 3.2% above Blackstone's offer, to close at 1.01 GBP ($1.26), 1 .6% above its offer. Nearly 78 million shares traded hands that day — about 11 times the average daily volume over the previous three months. Even before Concord's second offer of 1.00 pounds ($1.25) a share was announced on Wednesday, HSF shares peaked at 1.016 pounds ($1.27) and closed at 1.014 pounds ($1.26 ).
Investors looking to take advantage of a potential takeover will buy HSF shares up to — but not equal to — their expected transaction price. If investors believed the deal would be done at $1.30, they could offer as much as $1.29 per share and make a small but quick profit. Shareholders will vote on a takeover offer at HSF's meeting of shareholders on June 10.
The same dynamic was seen recently after Believe became the subject of takeover discussions. When a consortium of investors announced an offer of 15.00 euros ($16.04) per share, investors immediately bid the stock price up to 14.22 euros ($15.23), but suspected it was not the final offer. Even before Warner Music Group ( WMG ) announced it was interested in buying Believe for at least 17.00 euros ($18.18) per share, shares were trading around 15.25 euros ($16.31), up nearly 2% above Believe's offer.
Concord could have two advantages that would allow it to outbid Blackstone: its source of financing and its ability to manage HSF's portfolio. “All else being equal,” Stifel analysts wrote in a Monday (April 22) note to investors, Concord may outbid Blackstone because it has a lower cost of capital — Michigan Retirement Systems, a state pension fund — and superior ability to extract income from an under-managed portfolio'.
But Blackstone has an asset: Hipgnosis Song Management, which is majority owned by Blackstone, has an investor advisory agreement with HSF that gives it a call option to acquire HSF's portfolio if the advisory agreement is terminated. Stifel analysts believe the call option could act as a “deterrent” to prevent prices from escalating further — though it did not stop Concord from making a second bid. HSM seems determined to use the call option. In an April 22 statement, HSM said it was “confident that the [Songs Fund] has no legal reason to terminate our relationship without being subject to HSM's contractual rights contained in [investment advisory agreement, or IAA].”
Investors run the risk that the bidding process for the HSF may not go as they expected. In Believe's case, WMG never made a formal offer and eventually dropped out — which could leave investors who bought Believe shares up to 16.58 euros ($17.73) in the red if the takeover goes through initially 15 euros per share offer.
