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Smulyan keeps poker face as analysts buzz about future:

June 18, 2007

Never has there been more static around Emmis Communications Corp.

The big challenge these days is handicapping Jeff Smulyan's next move. Will Emmis' founder and CEO make another run at taking the radio station operator private? Largely on speculation of a deal, the company's long-slumping stock (which trades under the ticker EMMS) is up 20 percent for the year.

"Buy EMMS now before it's bought," CL King & Associates analyst James Boyle wrote in a recent report.

Added Wachovia Capital Markets analyst Marci Ryvicker: "With a core segment that continues to struggle with no true end in sight, we find it hard to believe that EMMS will remain a public company. The question is, how imminent is another go-private attempt by Jeff Smulyan?"

Sounds like almost a sure thing, right?

Not to Bear Stearns analyst Victor Miller, who in a new report considers the same facts and reaches the opposite conclusion. The headline of his report: "Not the right time to go private."

If Miller's making the right call, investors are headed for a fall. Based purely on the performance of the company, Emmis shares are worth just $6.75 to $8.50, Miller figures. That's way below the current trading price of around $9.90.

On the other hand, if investors follow Miller's guidance and he's wrong, they'll likely miss out on a tidy profit. Boyle figures the buyout price could be as high as $12.25 a share.

Analysts and rank-andfile investors are in a speculative frenzy in part because there's a vacuum of real information. The 60-yearold Smulyan is adept at responding to M&A questions without really saying anything. As he told analysts on a conference call last month, "We always look at all our options."

Smulyan negotiated with an independent board committee last summer to take the company private but was unable to come to terms. Securities filings show he dangled as much as $16.80 a share, or $518 million, for the 83 percent of the company he doesn't already own. An equivalent per-share offer today would be $12.80, adjusted for a $4-per-share cash dividend the company issued last November.

CL King's Boyle thinks the committee might be more accommodating now, because the U.S. radio industry has posted bleak results in the months since-a slide analysts attribute, in part, to the rising popularity of the iPod and satellite radio. He calls this "a more receptive atmosphere of lower, realistic expectations."

Boyle also is buoyed by widespread industry speculation that Emmis will sell off New York City's WQCD-FM 101.9, an underperforming smoothjazz station that might fetch more than $150 million. Proceeds would reduce Emmis' debt, Boyle noted, giving Smulyan more flexibility to ratchet up debt in a leveraged buyout.

But Bear Stearns' Miller believes the sale of the station at such a rich price would have the opposite effect, underscoring to the board that Emmis is worth more-as much as $18.50 a share-if it were to sell its 23 U.S. radio stations and other media holdings piecemeal. Because Smulyan holds shares with extra voting power, he controls the company and surely would block that from happening. Even so, Miller notes, if the board values Emmis using a sum-of-its-parts analysis, any offer from Smulyan would look paltry.

That's not the only obstacle confronting Smulyan, Miller believes. He said Emmis' U.S. radio stations are slumping, with broadcast cash flow tumbling 39 percent from its peak four years ago. The tailspin could so rattle lenders that they wouldn't provide buyout financing.

Investors, on the other hand, might have a different concern. If the company's performance has hit "bottom," Miller said, they might not want to sell, since doing so effectively gives Smulyan all the upside from a successful turnaround.

"Why should a privatization of EMMS be considered now when the assets are not stable and operating so poorly?" Miller asked.

One point on which nearly everyone agrees: Smulyan would love to take the company private if he can figure out a way.

Who can blame him? After going public in 1994, Emmis performed well through much of the 1990s. Back then, Smulyan won widespread praise. But it's now been more than seven years since the stock peaked at $62. These days, he's constantly second-guessed and criticized.

"I ... stand guilty as charged-our performance has not been good," he said on a conference call last month. "But we believe we're taking steps both in this company and in a leadership position in this industry to reinvent American radio."
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