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Emmis vote strips preferred shareholders of dividends

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Shareholders of Emmis Communications Corp. on Tuesday voted in favor of wiping out $34 million in unpaid dividends owed to preferred shareholders.

The vote by proxy followed a Friday decision by U.S. District Judge Sarah Evans Barker in Indianapolis denying a request by some preferred shareholders for an order preventing a vote on the proposal.

Corre Opportunities Fund LP and other preferred stockholders had argued that Emmis board members and Chairman Jeff Smulyan failed to comply with state and federal disclosure laws.

But Barker disagreed, denying Corre’s request for an injunction that the preferred shareholders had argued for during a two-day hearing that ended Aug. 1.

“[Emmis has] shown a likelihood that, if an injunction were to issue and the vote be enjoined, both Emmis’s stock price as well as its efforts to refinance before the November 2012 deadline could be seriously and adversely affected,” Barker wrote.

Following the Friday decision, shares of Indianapolis-based Emmis climbed from $1.91 to $2.50 each. Shares were down 5 percent, to $2.37 late Tuesday morning.

Barker said in her 48-page decision that shareholders “could be adequately compensated for by an award of monetary damages, should they ultimately prevail [in court] after a full assessment of the evidence.”

Meanwhile, Emmis is attempting to move ahead with a plan to reduce debt and stabilize its financial condition.

“It’s the last step in the things that we’ve done to alter the credit landscape of the company,” Smulyan said Tuesday morning following the vote. “While many of our peers have gone bankrupt, we’ve survived, and now we’ve got a pretty exciting future.”

With a market capitalization of about $85 million, Emmis has more than 41 million shares of stock outstanding, 2.8 million of which are preferred shares whose holders were entitled to automatic dividends before the vote.

Those dividends, worth 6.25 percent of the preferred shares’ $50 liquidation value, or $3.125, haven’t been paid since October 2008, the investors said in a court filing. Including those unpaid dividends, each preferred share is worth $62.12, according to a June 29 proxy statement.

Other measures on the Tuesday ballot that passed included elimination of future preferred dividends unless declared and, with that, the abolition of preferred stockholders’ ability to elect two members to the company’s board as long as there are arrears.

Voters controlling more than 80 percent of the preferred stock and 72 percent of the common stock voted in favor of the resolutions.

There was little suspense to Tuesday morning's voting. That's because Smulyan singlehandedly controlled the majority of the common votes, thanks to a special class of shares he holds with extra voting power. In addition, he and the company control the majority of the preferred shares.

“Coming back from where we were is probably the most gratifying thing in my career,” he said.

Corre alleged in court papers that the move to strip preferred shareholders of their dividends is a prelude to Smulyan’s attempt to take the ninth-biggest U.S. radio station operator private.

Smulyan has denied intentions to privatize the company after failed attempts to do so in 2006 and 2010.

Emmis owns 20 radio stations. Locally, it operates WFNI-AM 1070, WIBC-FM 93.1, WLHK-FM 97.1 and WYXB-FM 105.7, as well as Indianapolis Monthly magazine.
 

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