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Hipgnosis: Livin’ on a Prayer

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One thing to start: The US Federal Trade Commission says it will sue to block Microsoft’s $75bn acquisition of video game maker Activision Blizzard after the antitrust watchdog said the deal would suppress competition to its Xbox consoles and cloud-gaming business.

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In today’s newsletter:

The show must go on at Hipgnosis

Merck Mercuriadis makes money every time Bon Jovi’s Livin’ on a Prayer plays.

He may as well take advantage of it. “We’re gonna get this fund to number one,” the music mogul behind the London-listed Hipgnosis Songs Fund declared to a room of investors and analysts on Thursday, shuffling out the band’s former lead guitarist Richie Sambora to perform a rendition of the 80s rock anthem.

The production was part of an effort by Mercuriadis to soothe nerves over the investment trust he founded, which boasts the royalties to hits by megastars from Blondie to Britney Spears, but has been having some money troubles as of late.

Mercuriadis was one of the original pioneers to package up song rights and use royalty payments as a revenue stream from which to pay dividends. Private equity giant Blackstone, eager to get in on the action, bought his management company last year and set up a separate $1bn fund to buy more songs.

But this year hasn’t been kind to Hipgnosis. The fund is essentially frozen, as DD explained in September: its falling stock price has forced it to stop buying song rights because it can’t raise cash for purchases without diluting existing shareholders.

Despite its deeply discounted shares, Hipgnosis hasn’t budged when it comes to its $2.2bn valuation.

“Yes, [the] share price doesn’t reflect value, yes the discount is unacceptable, but we’re going to fix those problems,” Mercuriadis said.

He has pointed to the money coming in to justify his optimism. Underlying royalty revenue from Hipgnosis’s songs increased about 4 per cent to $121mn in the year to June, the company said. The figure has generally been falling in recent years.

It’s true that some songs will stand the test of time. Mariah Carey’s “All I Want for Christmas is You”, of which Hipgnosis has a 50 per cent stake, has been topping charts every holiday season since 1994.

But the public market values Hipgnosis’s catalogue at about half of what Mercuriadis’s team says they are worth. He says other recent music deals have traded at a similar multiple to that of Hipgnosis’s net asset value.

But most of these transactions happen behind closed doors, making it tricky to draw comparisons.

Song prices have declined in recent months because of rising interest rates, other participants in the market have told the FT. Yet Citrin Cooperman, the outside agency that sets the Hipgnosis valuations, has left the so-called “discount rate” — an interest rate used to calculate the catalogue’s value — unchanged for more than a year.

After a multibillion-dollar tour, Mercuriadis is determined not to be a one-hit-wonder.

The loan report Warrington Borough Council probably didn’t want you to see

SoftBank may have lost faith in Matt Moulding and his online retailer THG, but thankfully the British entrepreneur still has a deep-pocketed backer much closer to home.

Back in the heady days of September 2020, the Manchester-based purveyor of protein powder and lipstick publicly listed its shares at a £5.4bn valuation, London’s largest IPO in five years.

Shortly after that, Warrington Borough Council approved a £202mn loan facility to Moulding. Before signing off on the loan, however, the council in the North of England produced an internal report that erroneously stated the money was going to his ecommerce company THG instead.

Montage of Matt Moulding and THG logo

The FT’s Kadhim Shubber and DD’s Rob Smith obtained a redacted version of the report following a Freedom of Information request first submitted in September 2021. Warrington released the report last month after the Information Commissioner’s Office intervened. (Kadhim broke down the document on Twitter.)

Aside from the small matter of who was receiving the money, the document also has other puzzling errors and anomalies.

For example, it states that THG had a “credit rating of BBB [which] is expected to increase in the future”. But rather than carrying this investment-grade rating, the company was at the time ranked deeply in junk territory by the three major rating agencies S&P, Moody’s and Fitch.

Image of the redacted report on Warrington’s loan

Warrington told the FT that the cabinet was “clearly told the loan was to entities controlled by Matt Moulding”. The council said this was “covered extensively” in portions of the report that were not released due to commercial confidentiality and during a “risk management workshop” prior to the report being issued.

Lawyers for THG and Moulding said Warrington knew the loan was being made to entities controlled by Moulding well before the facility was agreed and that the council was aware that THG wasn’t intended to be a counterparty. Neither Moulding nor THG made any representations to Warrington about THG’s credit rating, the lawyers told the FT.

The loan from Warrington was secured on property that Moulding carved out of THG during the IPO, in a controversial arrangement in which he became his own company’s landlord. Given that THG shares have crashed more than 90 per cent since its marquee listing, the council is probably relieved that it has security on bricks and mortar instead.

So what’s going on here? A case of sloppy drafting? Thoughts and tips welcome: due.diligence@ft.com

Everything must go: the sprint to sell MPS

After 15 years of scandal and billions in state aid, Monte dei Paschi has been a thorn in the side of countless cabinets tasked with keeping the Italian lender on life support.

But its chief executive Luigi Lovaglio, appointed earlier this year by Mario Draghi’s former government, is confident things are set to change after a controversial €2.5bn rights issue, which includes €1.6bn contributed by the Italian state, was a surprise success.

The latest cash call is the seventh in 14 years. The ill-fated 2007 €9bn acquisition of rival Antonveneta from Spanish lender Santander kicked off a series of misfortunes for MPS, the most recent episode of which being a failed takeover deal after UniCredit and the Italian Treasury failed to agree on the terms.

The irony is that Santander was advised on the Antonveneta deal by Andrea Orcel, then a Merrill Lynch banker and now UniCredit’s chief.

Now, Italy’s new nationalist government might have a fresh chance at finding a buyer. Informal talks between Rome and local lenders have already begun, according to bankers in Milan.

UniCredit’s back in the game, but Rome has also sounded out Intesa Sanpaolo, the country’s largest lender. (The latter has some antitrust issues to solve first, though, since it owns another regional Tuscan lender, Cassa di Risparmio di Firenze.)

Before any deal talk can move forward there’s a catch: Brussels will have to overlook what experts and investors have called a blatant case of rule-bending by Italy and the bank, the FT’s Silvia Sciorilli Borrelli reports in her latest FT Big Read.

Job moves

  • Barclays has named 85 new managing directors.

  • Alibaba co-founder Jack Ma has stepped down as president of an important business group in his home province, as the Chinese billionaire continues to shun the limelight while spending time abroad.

  • American Express has appointed former US Federal Trade Commission chair Deborah Platt Majoras to its board. She was most recently Procter & Gamble’s chief legal officer before retiring earlier this year.

Smart reads

Top secret For the first time in history, three of the four top spies at Britain’s Secret Intelligence Service are women. FT Magazine delves past misogynistic archetypes of James Bond lore and into the complicated and intriguing realities experienced by female agents.

Shifting loyalties Fox News had much to gain from helping elect former US president Donald Trump. But the perks of siding with the MAGAverse are less apparent now. Murdoch’s media machine now finds itself in a tricky dilemma, the FT’s Alex Barker writes.

Feeling lucky European bankers have found a clever way to keep their buyout-debt machines churning: taking on some of the risk themselves, Reuters’ Breakingviews writes.

News round-up

Wirecard bosses accused of ‘criminal racket’ as trial begins (FT)

Trafigura’s shareholders and top traders to split $1.7bn in payouts (FT)

ExxonMobil announces $50bn buyback despite political backlash (FT)

Sun Capital Partners in advanced talks to buy UK’s K3 Capital (Reuters)

Fosun-owned Lanvin’s future hangs by a thread (FT)

Jeremy Hunt to overhaul UK ‘senior managers’ regime’’ (FT)

Former Theranos executive Sunny Balwani sentenced to nearly 13 years for fraud (FT)

Peter Thiel bets $250mn on venture debt fund (Bloomberg)

Cryptofinance — Scott Chipolina filters out the noise of the global cryptocurrency industry. Sign up here

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