INVESTING: Embattled Emmis may provide short-term opportunity

It’s been more than five years since I (accurately) predicted that satellite radio would be a major problem for traditional radio. And while I got no love for that call back then, I am going to step back to the lonely side of the street with this call: Terrestrial radio will take a long time to die, and in the short term there may be money to be made.

The radio industry (both from the sky and the ground) is on the verge of possibly massive changes. XM Satellite and Sirius recently announced plans to merge, which would create a colossus with 14 million subscribers.

If the regulators approve the deal, the combined company could, with a base that large, prove to be a serious challenge to the long-term viability of old-fashioned radio. Advertisers have been well aware of the threat satellite poses, which is why business at Emmis Communications Corp. and big dog Clear Channel has not been going well the last few years.

Clear Channel is in the midst of its own takeover saga, with a private equity group trying to take the company private. If that happens (and I doubt it will unless the buyers raise their price), Emmis will be one of the only pure play radio companies left on the stock market. That’s interesting.

Emmis has spent the past couple of years being beaten up by its large shareholders for not doing enough to enhance shareholder value. That’s the breaks, though, for taking a long-term position in a company where the chairman owns a minority of the business but controls 60 percent of the voting stock.

Emmis Chairman Jeff Smulyan answered critics last November with a one-time special dividend. The payout was substantial, but it didn’t do much to quiet shareholders seeking a long-term strategy shift. Emmis has been making noise lately about digital radio, which gives broadcasters the ability to multiply the number of stations they send out. This might be a way to delay the onslaught of satellite, but it’s only a delay. I don’t think that’s the reason the stock has been moving up recently.

Lean in close for a second and I will tell you a secret: I don’t have any idea why Emmis is moving up. I am making a shortterm bullish call based on what I am seeing in the stock chart.

In early March, the stock held near the lows of December, then put in some quality upside action with increasing volume. I did notice, however, that the short interest in the stock has been increasing.

Large short positions can be bullish, as all those bears might retreat and begin buying shares if good news comes out. That might be attracting the private equity crowd.

There is potential for the stock to move to $13 by July, which is a long way from the current price of $9 a share. If the stock dropped back to $8 anytime soon, I would abandon this bet and move on.

I guess we’ll find out in the next few months why the stock is heading higher. By then, I believe, it will be time to take a few dollars of profit and turn the dial to another station.