Concord and Blackstone are in a bidding war to acquire the equity of Hipgnosis Songs Fund (HSF). On Wednesday (April 24), Concord bid $1.25 per share for HSF’s share capital, beating Blackstone’s offer of $1.24 per share (1.00 GBP), or $1.5 billion, announced on Sunday (April 21). In response to Concord’s latest offer, Blackstone said on Thursday (April 25) that it was “considering its options.”

Concord had opened with a bid of 0.93 pounds ($1.14) per share, equal to $1.4 billion, on April 18.  

Some investors are betting the bidding will go well above the current offers. On Tuesday, shares of HSF rose as high as 1.03 pounds ($1.28) respectively, 3.2% above Blackstone’s offer, and closed at 1.01 GBP ($1.26), 1.6% above its bid. Nearly 78 million shares traded hands that day — about 11 times the average daily trading volume over the previous three months. Even before Concord’s second bid of 1.00 pounds ($1.25) per share was announced on Wednesday, shares of HSF peaked at 1.016 pounds ($1.27) and closed at 1.014 pounds ($1.26).  

Investors who want to capitalize on an eventual acquisition will buy HSF shares up to — but not equal to — their expected deal price. If investors thought the deal would happen at $1.30, they could bid up to $1.29 per share and make a small yet quick profit. Shareholders will vote on an acquisition offer at HSF’s June 10 shareholder meeting.  

The same dynamic was recently seen after Believe became the subject of takeover talks. When a consortium of investors announced a bid of 15.00 euros ($16.04) per share, investors immediately bid the share price up to 14.22 euros ($15.23) but suspected it wasn’t wasn’t the final offer. Even before Warner Music Group (WMG) announced it was interested in acquiring Believe for at least 17.00 euros ($18.18) per share, shares were trading around 15.25 euros ($16.31), nearly 2% above Believe’s offer.  

Concord could have two advantages that would allow it to bid higher than Blackstone: its source of funding and its ability to administer HSF’s portfolio. “If all else is equal,” Stifel analysts wrote in a Monday (April 22) note to investors, Concord can outbid Blackstone because it has a lower cost of capital — Michigan Retirement Systems, a state pension fund — and a superior ability to “extract revenue from an under-managed portfolio.”  

But Blackstone has a trump card: Hipgnosis Song Management, which is majority owned by Blackstone, has an investor advisory agreement with HSF 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 further price escalation — although it didn’t prevent Concord from bidding a second time. HSM appears determined to employ the call option. In a April 22 statement, HSM said it was “confident that the [Songs Fund] has no legal grounds to terminate our relationship without being subject to HSM’s contractual rights contained in the [investment advisory agreement, or IAA].”

Investors run the risk that the bidding process for HSF won’t transpire as they anticipated. In the case of Believe, WMG never made a formal offer and eventually dropped out of consideration — which could leave investors who bought Believe shares as high as 16.58 euros ($17.73) in the red if the acquisition proceeds at the original 15-euros per share offer.