Smulyan’s plan to take Emmis private faces opposition

Emmis Communications Corp. CEO Jeff Smulyan’s latest plan to take the radio and publishing company private is hitting some turbulence less than a day after it was announced.

On Friday, investor Tim Stabosz, a LaPorte city council member who owns 150,000 shares of Emmis stock, said Smulyan’s offer—which was made public late Thursday afternoon—is “a slap in the face.”

Under Smulyan’s proposal, E Acquisitions Corp., the company that Smulyan has established to complete the acquisition, would purchase all shares of publicly traded Emmis for $4.10 each. Smulyan stated that he had secured financing from Falcon Investment Advisors, a Boston-based private equity firm. It's the third time in 10 years Smulyan has attempted to take the company he founded in 1980 private.

With approximately 12.2 million Emmis shares outstanding, the deal would be worth about $50.3 million.

“I’m disappointed and I’m hurt by this offer, and I’m going to fight this with everything I have,” Stabosz told IBJ Friday. “I’m quite certain that I’m not the only stockholder that’s going to stand against this. I think there’s going to be a lot of pushback.”

Smulyan’s offer “seriously undervalues the company,” Stabosz said, adding that the plan serves to stunt the growth of the company’s stock price.

Stabosz said he’s been an Emmis stockholder “off and on since 2008” and once owned as much as 5 percent of the company’s stock. He said he called Smulyan on Friday morning—leaving a voice mail—to express his displeasure.

Prior to Thursday’s announcement, Stabosz said he was forecasting the stock would be trading at $6 to $10 a share within six months.

“Emmis has stabilized its situation in L.A., and with [market manager] Charlie Morgan in New York, [they] have that turned around,” Stabosz said. “Plus, NextRadio is on the cusp of a breakout period.”

Stabosz said it would take a premium of at least 40 percent for him to consider Smulyan’s privatization plan.

“I’d rather the company stay public. We’re at a point where the company’s story is getting hot and heavy. It’s getting sexy,” Stabosz said. “Wall Street loves a good story. Wall Street buys stories.”

Two analysts IBJ talked to on Thursday said they thought there would be little to dissuade stockholders from approving Smulyan’s plan.

“Given how small the market cap is, I don’t see any major holders that will dig in their heels and say, 'They’re not paying us a fair price,'" said Mark Foster, a stock analyst with Columbus-based Kirr Marbach. “It’s a decent premium based on where the stock was trading two months ago.”

Emmis shares were trading at $3.96 at market close on Thursday and ended Friday's trading at $4.15 each, meaning Smulyan would be buying the shares at a discount. Shares had been trading near $3 before a sudden spike in the second week in July.

“[Analysts] said the stock price was rising because word of this [privatization] deal leaked out. I don’t think that’s true,” Stabosz said. “Investors realized good things are on the horizon for Emmis. A good base of the current shareholders appreciate the unique culture and value proposition that is Emmis.”

The analysts who say the deal will sail through “are way off,” Stabosz said.

“They don’t know what they’re talking about,” he said. “They don’t know the stockholders. They’re going to fight this.”

Before the deal could go through, a valuation by an investment bank will likely be done, then the deal must be approved by the company’s board of directors and its shareholders in a process that is likely to take several months.

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