Failed bid to take Emmis private costing millions

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Emmis Communications Corp. CEO Jeff Smulyan’s JS Acquisition LLC has racked up expenses and fees of about $10.2 million in its attempt to take the Indianapolis-based media company private.

The figure, included in a public filing, is sure to grow as the $5.5 million legal bill escalates. On Wednesday, JS Acquisition sued its one-time financier, Alden Global Capital, for backing out of the deal.

Smulyan didn’t dispute the amount when asked about it Thursday morning.

“I would say that’s in the ballpark,” he said. “There’s a tremendous amount of fees.”

Attorneys filed a breach of contract claim against three Alden Global Capital units in Marion Superior Court, saying the going-private transaction failed when Alden changed course after months of negotiations with a group of preferred shareholders—costing JS Acquisition “significant” fees and other expenses.

JS Acquisition is represented by the Indianapolis office of Cincinnati-based Taft Stettinius & Hollister LLP.

Alden and JS Acquisition, a private company formed by Smulyan to complete the buyout, agreed in April to take Emmis private. But, in July, nine dissident investors—holding a combined 38 percent of the company’s preferred shares—emerged to block the $90 million deal.

They balked at Smulyan’s initial offer to convert their holdings into bonds worth only 60 percent of the value of the shares, but paying an interest rate nearly double the 6.25 percent the shareholders currently enjoy.

Negotiations among the three groups began in late July, the lawsuit said, and by Aug. 5 the preferred shareholders had agreed to a sweetened offer that increased the bonds to 77.5 percent of the share value and adjusted the interest rate by an undisclosed amount.

The lawsuit said Alden confirmed the terms of the new agreement on Aug. 6 and Aug. 7, then rejected the modifications on Aug. 20. A few days later, according to the suit, Alden principal Randy Smith told JS Acquisition that a “precipitous” drop in radio-industry assets made the deal unattractive.

Alden acknowledged in a public filing that it participated in negotiations to revise the original terms of the offer, “to a limited extent.” But Alden maintained in the filing that the more generous terms would leave JS Acquisition overleveraged and “unattractive” to Alden.

Smulyan disputed Alden’s allegations.

“We don’t agree that is the reason they backed out,” he said while declining to elaborate. “While the stock has declined, all the metrics since the deal was announced got better, not worse.”

Emmis shares have declined in value by about 15 percent since the April going-private announcement, trading Thursday morning at $1.05 each. Shares were down about 5 percent when the preferred shareholders first raised objections.

Smulyan, however, remains bullish on Emmis, saying the performance of both its radio and publishing divisions are improving.

For its fiscal year ending Feb. 28, Emmis expects revenue of $253.6 million, a 4.5-percent increase over its previous fiscal year.

“The worst of the economy is over, and I also think the perception of traditional media was overstated—the perception that it was dead and gone and buried,” he said.

For its first fiscal quarter ended May 31, Emmis lost $3.9 million, or 10 cents a share, compared with a profit of $11.9 million, or 32 cents a share, in the same period last year. Revenue increased 1 percent, to $60.3 million. Results of the second quarter, which ended Aug. 31, have yet to be released.

Founded by Smulyan in 1981, Indianapolis-based Emmis owns 23 radio stations in the United States and publishes regional magazines, including Indianapolis Monthly, in seven cities. It also operates radio stations in Slovakia and Bulgaria.


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