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Emmis vote could deal blow to preferred shareholders

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Emmis Communications Corp. is calling a special meeting where investors will vote on whether to strip preferred shareholders of their right to collect millions of dollars in dividends.

The get-tough tactic, if successful, might cause Emmis’ long-slumping common stock to spring higher. Common shares fetch a mere 73 cents each, weighed down by massive liabilities stemming from the company’s issuance of $140 million in preferred stock 13 years ago.

In addition to being asked to weaken the rights of preferred shareholders, investors at the meeting will consider authorizing a reverse stock split that would push the price of the company’s shares above $1. NASDAQ has been threatening to delist the shares because they have closed below that threshold since July 2011.

The Indianapolis company, which owns radio stations and magazines, filed a preliminary prospectus for the meeting late Tuesday. It has not determined when the meeting will occur.

The move is the latest step in Emmis’ quest to free itself from the burdensome requirements of the preferred stock. The shares are supposed to pay 6.25 percent, but the financially strapped company has been exercising its right to suspend payments since October 2008. From then through early December 2011, $26.7 million in unpaid dividends piled up as liabilities on Emmis’ balance sheet.

Emmis has made tremendous inroads in recent months eliminating the albatross. Last fall, it borrowed $35 million from Chicago financier Sam Zell to begin buying up the shares at a huge discount, and it now has voting control over 61 percent of the preferred stock.

The changes to be voted on at the special meeting require two-thirds approval of the preferred shareholders. The company said in a Securities and Exchange Commission filing in late January that it may be able to get over that two-thirds hump by selling preferred shares to a friendly investor.

In the preliminary proxy, Emmis’ board—except for Dave Gale, the sole director appointed by holders of the preferred stock—recommend support of the changes, saying they “will have a positive effect on the overall capital structure of Emmis, which will have a beneficial impact on the holders of common stock.”

The proxy said Gale argued “there is no economic reason [for the changes], other than to transfer wealth from the holders of preferred stock to the holders of common stock.” He said “the proposed amendments use corporate resources to subvert the rights of holders of preferred stock and are not in the best interests of Emmis.”

In an interview with IBJ in January, Emmis Chief Operating Officer Patrick Walsh called the preferred stock “a significant part of the structure that would need to be addressed for the common shareholders to ever see significant appreciation in value.”
 

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  • Pump and Dump
    If the stock is delisted it will be even harder to create interest in the stock, thus the Common Holders are damaged. The decision, made thirteen years ago, to sellout the Common Shareholders for a mere $140 Million of Preferred Stock, will not save the company, it will only save the investors, except for the Preferred Holders. If this devaluation of the Preferred Status is approved, watch for the "pump-and-dump" that allows the common shareholders a way out, at the expense of more unsuspecting buyers.
  • Too much
    Is this an example of yet another company over-reaching and running up way too much debt?

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  1. Now if he'd just stay there...

  2. Daniel - what about the many US citizens who do NOT follow what the Bible teaches? The Hindus, Jews, Muslims and others who are all American citizens entitled to all rights as Americans?? This issue has NOTHING to do with "What the Bible says..." Keep all Churches separate from State! Pence's ongoing idiocy continues to make Indiana look like a backwards, homophobic state in the eyes of our nation. Can't we move on to bigger issues - like educating our kids?

  3. 1. IBJ should link to the referenced report. We are in the age of electronic media...not sharing information is lazy. Here is a link http://www.in.gov/gov/files/Blue_Ribbon_Panel_Report_July_9_2014.pdf 2. The article should provide more clarity about the make-up of this panel. The commenters are making this item out to be partisan, it does not appear the panel is partisan. Here is a list of the panel which appears to be balanced with different SME to add different perspectives http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&eventidn=138116?formation_id=189603 3. It suggests a by-pass, I do not see where this report suggests another "loop". 4. Henry, based on your kneejerk reaction, we would be better off if you moved to another state unless your post was meant as sarcasm in which case I say Well Done. 5. The article and report actually indicates need to improve rail and port infrastructure in direct contradiction to Shayla commentary. Specifically, recommendation is to consider passenger rail projects... 6. People have a voice with their elected officials. These are suggestions and do not represent "crony capitalism", etc. The report needs to be analyzed and the legislature can decide on priorities and spending. Don't like it, then vote in a new legislature but quit artificially creating issues where there are none! People need to sift through the politics and provide constructive criticism to the process rather than making uninformed comments in a public forum based on misinformation. IBJ should work harder to correct the record in these forums when blatant errors or misrepresentations are made.

  4. Joe ... Marriage is defined in the Bible ... it is mentioned in the Bible often. Marriage is not mentioned once in the US or Indiana Constitution ...

  5. Daniel - Educate me please: what does the Bible have to do with laws? If the government wasn't in the business of marriage to begin with, then it wouldn't have to "define" marriage at all. Marriage could be left as a personal, religious, or otherwise unregulated action, with no ties to taxes, legal status, etc. Then people could marry whomever they want, and all this silliness would go away. Remember to vote Libertarian in November.

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