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Only a few years ago Guernsey would’ve seen a couple of multi-million-pound takeovers a year, but recently these kinds of complex deals have been happening far more often.
Take, for example, the Hipgnosis Songs Fund, a Guernsey-registered Investment and song management company.
Founded by Chic's Nile Rodgers and music exec Merck Mercuriadis in 2018 with a portfolio currently ranging from Red Hot Chillis to 50 Cent and Blondie, it's based on the idea that music is an asset that should increase in value as the streaming market grows, and not be affected by economic cycles in the same way as others.
Until very recently, it appeared to be on a path to be taken over by Concord Chorus Limited. It's the eighth type of takeover deal that Carey Olsen has advised on in the past 12 months.
"In normal times we would probably only see one or two takeovers a year, sometimes we wouldn't see any at all,” explained Tony Lane, a partner in the Corporate and Finance Group at Carey Olsen.
“I think prior to this latest run of takeovers that we've seen I would guess the last one was probably at least two years ago and if not, three.”
So, what exactly is a takeover? Why has there been what Mr Lane describes as a "massive uptick in activity"? And will the trend continue?
"A takeover involves a company that is publicly listed,” explains Mr Lane.
“This means shares are listed on a stock exchange, anywhere in the world. We have Guernsey companies listed in various exchanges around the world, but mostly it's London.”
Pictured: Carey Olsen's Tony Lane came to the Bailiwick Podcasts studio to speak in-depth about takeover deals – you can listen to the full podcast interview HERE.
Having these shares on an exchange allows them to be bought and sold daily, and a takeover is when a separate entity comes along and tries to buy the whole lot. These ‘takeovers’ can range from fairly harmonious deals, to time-consuming contentious ones.
“The traditional route,” continues Mr Lane, “and probably what most people think of when when they think of a public takeover is a general offer, where the buyer announces their intention and writes to all of the shareholders.”
A figure is published and the shareholders have to decide whether or not they accept it.
“There's a provision in the company's law here, which is the same as in in the UK... which is that if a bidder makes an offer like that and gets over 90% acceptance, they can squeeze out the remainder.”
The alternative to this approach is a ‘scheme of arrangement’.
“So, you have the company itself, the target company, writing to its shareholders to say someone has made an offer to buy all of the shares.
“They hold a shareholder meeting... and if it's approved by shareholders, then it would go to court to be sanctioned.”
This is the preferred route these days, he explains, because it is seen as a more certain way of achieving a takeover, due to the fact that only 75% of the votes at a meeting are needed, and not everyone attends.
Takeovers are complicated, expensive, and require serious legal advice. Carey Olsen is not only advising on a billion-dollar takeover of Hipgnosis, it has also been taking on more of the same kind of work.
“The reasons for this are largely market-driven.
“It's no secret that equity capital markets all around the world... are in the doldrums. It's hard to raise capital with lack of liquidity, and a result of this is shares are trading at a discount to the value of the company... and this is particularly acute for listed investment funds, of which Guernsey has many.”
The investment company sector on the London Stock Exchange is mainly comprised of English or Guernsey companies, and there are a large number of Guernsey investment companies listed in London. One of the features of an investment company is they have a portfolio of underlying assets which are held for investment purposes, rather than being a trading business.
Pictured: The investment company sector on the London Stock Exchange is mainly comprised of English or Guernsey companies, and there are a large number of Guernsey investment companies listed in London.
These assets are relatively easy to split up and sell off and the valuation of these assets are periodically published.
“Yet, when you look at the trading prices of the shares on the on the stock exchange, you can see that these are trading at a significant discount to the value of the assets that the company holds and that presents an opportunity,” Mr Lane says.
Mr Lane has recently been focused on supporting Hipgnosis Songs Fund Limited through a takeover worth more than $1.4billion.
The Boards of Hipgnosis and Concord Chorus Limited announced earlier this year that they’d agreed on a cash offer for shares in Hipgnosis.
It’s a very public deal, drawing worldwide attention and repeatedly making international headlines in industry press like the Financial Times. More recently, Blackstone pitched its own $1.6billion bid for the same shares, and, just last week, Concord effectively bowed out of the bidding war by stating its last offer was final.
It’s an ongoing deal that Mr Lane could say very little on, but in a press release published in April he said: "We are delighted to be assisting the Hipgnosis Board in its aim to maximise the return to shareholders.
“We have been involved in a significant amount of takeover activity in the past 12 months, particularly in the investment company sector which has seen a number of consolidations and public-to-private transactions."
Beyond Hipgnosis, Mr Lane expects the market to slow down, but for now there remains a flurry of activity in this arena.
"I've certainly not seen this level of activity at any point in my time, and as I said, there's a number of different factors all working together that means we are seeing an increased level of activity, whether it be consolidations or [other deals]."
He said as the market slows down, and interest rates start to drop, we may start seeing new entities develop and takeovers falling back to expected levels.
Listen to the podcast below to hear Carey Olsen Partner Tony Lane speak in further depth about takeover deals or find it by searching 'Bailiwick Podcasts' wherever you get your podcasts...
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