In a letter to shareholders on Monday, Asset Value Investors (AVI) said it would vote against the deal and asked fellow investors to do the same, citing "uncompetitive nature" of the process and lack of an "up-to-date valuation" that made it unlikely to be the best deal for them.

AVI manages a 5% stake in the music investor on behalf of its institutional clients.

Last month, Hipgnosis announced it would sell 29 music catalogues - including songs by pop star Shakira and rapper Nelly, and a collection of non-core songs - to a partnership between the company's investment adviser and funds advised by Blackstone.

The company, which also owns rights to songs by the Red Hot Chilli Peppers and Neil Young, had said the deal would help fund a share buyback, pay down debt and bolster its stock price.

"In time, against a more accommodating market backdrop, a sale of part of the portfolio or the company, may well be judged to be in the best interests of all shareholders," AVI said in the letter.

Shares of Hipgnosis were down 10.8% at 66 pence by 1113 GMT after the company withdrew its proposed interim dividend earlier in the day. They have lost over 20% of their value since the deal was announced.

Hipgnosis did not immediately respond to a Reuters request for comment on AVI's remarks.

(Reporting by Eva Mathews in Bengaluru; Editing by Anil D'Silva)