By Yadarisa Shabong
(Reuters) -Nashville-based independent music company Concord has agreed to buy Britain's Hipgnosis Songs Fund for $1.4 billion, the companies said on Thursday, to gain rights to the catalogues of artists including Shakira and Neil Young.
Hipgnosis, a music rights investment company founded by industry veteran and former CEO Merck Mercuriadis, launched a strategic review last year after a shareholder revolt led to a board overhaul, a portfolio revaluation, and a dispute with its investment adviser over a call option.
Its investors will get $1.16 per share in cash, representing a premium of about 32% to Wednesday's closing price, based on current exchange rates. Hipgnosis shares, which listed in London in 2018 and have fallen more than 45% from their 2021 peak, rose 31% to 92.5 pence ($1.15).
Hipgnosis bought several music rights over the years and attracted investors with a steady source of income on royalties from streaming and performances, but faltering valuations amid high interest rates have pressured the group.
Analysts say the focus is now on Hipgnosis' investment adviser HSM, which is backed by Blackstone (NYSE:BX) and holds a call option under an investment advisory agreement that gives it the right to purchase the fund's portfolio if and when the agreement is terminated.
Mercuriadis, who has managed the likes of Elton John and Beyonce, also founded HSM, where he is now chairman.
"The main uncertainty at this stage is whether the investment adviser will trigger the purchase option on the portfolio, and return with the necessary higher offer," Jefferies analyst Matthew Hose wrote in a note.
Hipgnosis Chairman Robert Naylor encouraged HSM and Blackstone to agree an orderly termination of the agreement, saying it would "bring to an end a period of uncertainty for all Hipgnosis stakeholders."
"Mercuriadis has his reputation to protect and is unlikely to let go without a fight," AJ Bell analyst Russ Mould said.
His representative and Blackstone did not immediately respond to a request for comment.
Concord, backed by Apollo, is indirectly controlled by Alchemy Copyrights, which acquired music investor Round Hill Music last year under the chairmanship of Naylor.
Naylor joined as Hipgnosis chairman from Round Hill in November.
The deal with Concord, backed by Hipgnosis' board, has to be approved by shareholders.
In October, shareholders rejected the fund's proposed $440 million deal to sell 29 catalogues to Hipgnosis Songs Capital - a partnership between Blackstone and HSM - on valuation concerns.
Concord's publishing arm counts songwriters such as Daft Punk and Mark Ronson as part of its roster, per its website.
($1 = 0.8021 pounds)