Yahoo Finance Hipgnosis founder fell short of music industry standards, report finds
The founder of troubled music rights firm Hipgnosis has fallen short of music industry standards when advising the London-listed fund, an external report has found.
In its due diligence report published on Thursday, Shot Tower Capital said Hipgnosis Songs Management (HSM), the investment adviser led by Merck Mercuriadis, had “failed to perform to music publishing industry standards”.
It accused the music mogul, a former manager of Beyonce and Sir Elton John, of failures in due diligence and underwriting, which it said led to the company overpaying for the majority of its song catalogues.
Shot Tower said HSM had failed to properly manage the portfolio, which features more than 40,000 songs by artists including Shakira and Neil Young, and accused the founder of mismanaging conflicts of interest in his role.
It also raised concerns about expenses it deemed “excessive” or unrelated to the fund, including up to $2m (£1.6m) per year on award shows and public relations.
HSM said it had not been given time to review the report in detail, but that there were aspects it “strongly disagrees with and considers to be factually inaccurate and misleading”.
The adviser added: “Throughout the life of the company, HSM has worked constructively, and in good faith, with the company’s board and other advisers (including legal, audit, tax, financial markets and valuation) to deliver the best outcome for the company’s shareholders.”
The due diligence report forms part of a wider strategic review at Hipgnosis after it lost the backing of shareholders in a crunch vote in October.
The board must present options for the future of the fund by April 26, or face being wound up.
Hipgnosis’s newly appointed board, led by chairman Robert Naylor, has become embroiled in a row with Mr Mercuriadis over issues including governance and the valuation of the song’s portfolio of songs.
Shareholders last year blocked the sale of a $440m catalogue of songs to a Blackstone-backed sister fund also run by Mr Mercuriadis. Shot Tower said Hipgnosis will incur costs of around $5.7m linked to pursuing the deal.
Alongside the report, Shot Tower confirmed its estimation of the true value of Hipgnosis’s song catalogues at $1.95bn, a reduction of around 26pc from the company’s last valuation at the end of September.
Shares in Hipgnosis Songs Fund rose 8pc following the announcement, giving the company a market value of around £835m.
