UPDATE: Emmis takeover deal unlikely to hit turbulence

Back to TopCommentsE-mailPrintBookmark and Share

A big Emmis Communications Corp. shareholder believes the $90 million deal CEO Jeff Smulyan unveiled Monday morning to take the company private is unlikely to get derailed—even though it’s worth far less than a takeover offer Smulyan failed to get through his board four years ago.

The shareholder, Frank Martin of Martin Capital Management in Elkhart, noted Smulyan has tremendous clout to control Emmis’ fate because he owns a special class of stock that has 10 times the voting power of regular shares. As a result, his voting power is around 70 percent, even though he owns less than 20 percent of the stock.

Monday morning's announcement also notes that Smulyan already has lined up a financial backer—Alden Global Capital of New York. And it says terms of the deal require that the Emmis board send the matter directly to shareholders without a recommendation. If the board does so, Smulyan's votes alone would assure approval.

“This thing is three-quarters wired shut,” said Martin, whose firm owns 6 percent of Emmis.

He said Smulyan, 63, may justify sending the matter directly to shareholders on the grounds that any delay could cause Alden to walk away. Boards typically hire an outside firm to prepare a fairness opinion before blessing or rejecting a proposal.

According to Monday's announcement, JS Acquisition Inc., the firm Smulyan has established to complete the acquisition, would purchase all shares of publicly traded Emmis for $2.40 each, or about $90 million.

Smulyan made an offer in May 2006 to acquire all of the shares of Indianapolis-based Emmis for $15.25 per share in a deal that valued the company at $567 million. He called off the deal a few months later after he couldn’t reach terms with the board.

Smulyan's offer is about an 84-percent discount to the previous offer. Since that offer, however, the prospects for the radio industry have dimmed substantially. The company also issued a $4-a-share cash dividend that pushed down its stock price.

Emmis spokeswoman Kate Snedeker said Monday that Securities and Exchange Commission rules prohibit company executives, including Smulyan, from discussing the plan.

Emmis shares rebounded from a 52-week low of 25 cents apiece in July to close Friday at $2.30 each.

A key party in the deal is Alden Global Capital, which owns 42 percent of the $140 million in preferred stock Emmis has outstanding. Alden has consented to exchange that stock for bonds due in 2017 paying a hefty 12 percent interest rate.

Emmis wants all preferred shareholders to make the same exchange, and needs approval from holders of two-thirds of those shares to move forward. With Alden already on board, it needs approval from holders of only another 24 percent of the shares.

The preferred shareholders would receive bonds reflecting only 60 percent of the face value of the preferred stock. But despite the haircut, many may come out well ahead on their investment. That’s because they likely were able to buy their shares at a huge discount since Emmis has been struggling and has failed to pay scheduled dividend payments on the stock for six consecutive quarters.

If the going-private transaction closes, Arden may end up with a substantial stake in the company. In Monday's announcement, Emmis said Arden has agreed to buy $80 million of new preferred stock that is convertible into common stock. It also would receive warrants giving it the right to buy common stock in the future at a nominal price.

Mark Foster, chief investment officer of Kirr Marbach & Co. in Columbus, said going private probably makes sense for Emmis. He said the company’s debt load—-which exceeds $300 million—likely unsettles many prospective public company investors.

Going private would give Smulyan more leeway to run the company as he wishes, Foster said.

“He’s always been an innovator in the industry,” he said. “But sometimes Wall Street is not all that keen on innovation. [With Emmis] as a private company, he can probably do what he wants. And that’s not a bad thing."

Founded in 1981, Emmis owns 23 radio stations in the United States and publishes regional magazines in seven cities. It also operates radio stations in Belgium, Slovakia and Bulgaria, and owns interest in a Hungarian station.

Transactions in which insiders seek to buy the companies they run often spur lawsuits alleging boards breached their fiduciary to shareholders and failed to solicit higher offers from unaffiliated parties. At least two law firms issued press releases Monday saying they were investigating the Emmis transaction.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Angela IS the best RD

  2. We are a nation of speed. All of our younger lives are filled with deadlines, quotas and bottom lines. We start to ease out of the pressured rat-race when we finally see "retirement." The most enjoyable travel on the planet is passenger rail service. Indy to Chicago does not beat Megabus or Southwest Airlines in speed. Passenger rail however has the best seating, mammoth legroon, seat backs that recline to more than 45 degrees and employers that really want you to return as a customer. Indiana municipalities need to maintain subsidies to support this transportation mode. Losing it is loss for all of us.

  3. Good day! I just want to testify how i got my loan from Mr. Eric Lefkofsky after i applied several times from various loan lenders who claimed to also testify right in this forum,i thought the testimonies where real and i applied but they never gave me loan. I was in need of an urgent loan to start a business and i applied from various loan lenders who promised to help but they never gave me the loan. Until a friend of mine introduce me to this popular Mr. Eric Lefkofsky who promised to help me and indeed he did as he promised without any form of delay. I never thought there are still reliable loan lenders until i met Mr. Eric lefkofsky who indeed helped me with the loan and changed my belief. I promised to share this testimony after I got my loan. I don't know if you are in any way in need of a genuine and urgent loan,free feel to contact Mr. Eric Lefkofsky via their email{grouponfunding@hotmail.com}

  4. Its a THUG issue. Bleecker Street and NYX are thug bars. They attract thugs of all races. Places that attract thugs need to be kicked out of Broad Ripple. Ain't nobody got time for that!

  5. Hello everyone, My name is Marian Gareth, I am from the Texas, United State, am here to testify of how i got my loan from Mr Andre Frank {frankloancompany@yahoo.com} after i applied Two times from various loan lenders who claimed to be lenders right in this forum,i thought their lending where real and i applied but they never gave me loan. I was in need of an urgent loan to start a business and i applied from various loan lenders who promised to help but they never gave me the loan.Until a friend of mine introduce me to Mr Andre Frank the C.E.O of Andre Frank Loan Company who promised to help me with a loan of my desire and he really did as he promised without any form of delay, I never thought there are still reliable loan lenders until i met Mr Andre Frank, who really help me with my loan and changed my lief for better. I don't know if you are in need of an urgent loan, free feel to contact Mr Andre Frank on his email{ Frankloancompany@yahoo.com} for help