Preferred shareholders blocking Emmis’ repurchase plans

December 19, 2011

A group of preferred shareholders of Emmis Communications Corp. is attempting to block the Indianapolis-based media company’s offer to repurchasing another $6 million of preferred stock.

Emmis announced Dec. 1 its intention to pay between $12.50 and $15.56 per share for the preferred stock, and on Dec. 12 increased the minimum purchase price to $14.

But a group of preferred shareholders that includes New York-based Corre Partners Management LLC has banded together to prevent the sale of those shares through a lock-up agreement, according to Securities and Exchange Commission documents.

They're concerned that through repurchases, Emmis would amass voting rights for two-thirds of the preferred stock, and that it might use the clout to remove "its obligation to pay the amount of dividends that are currently accrued and unpaid” and to eliminate the right of preferred stockholders to nominate directors to Emmis' board.

Because of its financial struggles, Emmis has suspended making its quarterly dividend payments on preferred shares since October 2008. The payments normally would total more than $2.4 million a quarter.

Emmis announced Nov. 11 that it planned to repurchase up to $35 million in preferred stock from various investors at a huge discount. It has reached agreements to buy more than $28 million so far.

Emmis' offer to purchase another $6 million in preferred shares expires Dec. 30 unless the company extends it.

The preferred stock repurchase plan is the latest bid by the heavily leveraged company to gain financial breathing room.

Emmis is funding the repurchases by borrowing up to $35 million from Chicago financier Sam Zell. The money is due to be paid back by February 2015, at an annual interest rate of 23 percent.

Before the repurchases began, the company had about $140 million in preferred stock outstanding. However, those shares were trading for just $42 million.
Common shares of Emmis are trading at 75 cents each. Those shares will need to rise to or above the $1 minimum for at least 10 consecutive business days before Feb. 27 to remain listed on the NASDAQ exchange.


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