Dissident fires another shot at Emmis

Despite his dissatisfaction with Emmis Communications management, Frank Martin has bought more shares of Emmis for Martin Capital Management. The investment firm and its associates now own 2,968,333 shares, or 9.5% of the publicly traded Class A stock. Martin has long been pushing for Emmis to sell off its radio stations and magazines as the best way to return value to its long-suffering shareholders. But, with CEO Jeff Smulyan holding voting control via his super-voting Class B stock, that idea hasn’t gotten anywhere.

Now he’s fired off a letter to the four independent directors in which he questions whether Lead Director Susan Bayh, the wife of Sen. Evan Bayh (D-IN), is truly independent and suggests that all four refuse to stand for re-election if they won’t force a sell-off of Emmis’ assets.

“To begin, the well-chronicled personal relationship that Ms. Bayh and her husband have with the Emmis CEO might logically raise legitimate questions about the extent of Ms. Bay’s independence,” the letter says at one point. Martin goes on to say that the July 15th annual shareholders meeting might be the time to “finally take stock of the state of the Emmis union before you are pre-empted” – suggesting that the company could face an involuntary takeover by its lenders. “By all appearances, the lenders are now the ones calling the shots at our embattled company,” Martin asserted.

What does he want the directors to do? Martin says they could leave quietly by not running for re-election. “At the least you will absolve yourselves of further complicity in a sordid saga that may not end well. As addressed just above, the more honorable and permanent act is to squarely address the forces that have rendered Emmis impotent. Emmis has not demonstrated that it has the leadership necessary to be a publicly-owned company. I implore you to act in the best interest of the shareholder constituency. Having few options left, you must certainly believe that the most productive means of wrapping things up is for the Company to engage in an orderly divestiture of its operating assets and distribute the proceeds to shareholders. All shareholders, A and B alike, will benefit equitably and optimally. Should the CEO oppose this directive from the Board, he should be replaced. One can only devoutly hope that the ultimate legacy of each of you will be: ‘All’s well that ends well’,” the letter said.

Emmis spokesperson Kate Snedeker told RBR/TVBR she did not know whether the independent directors would be responding directly to Martin. “I can tell you that Frank writes us frequently, and as you could tell from the letter, he lacks perspective on the challenges facing our industry.  As we discussed on the earnings call just this morning, Emmis will continue to play a leadership role in finding solutions for the challenges of American media.  If any of our shareholders have longer-term, constructive ideas for creating value, we welcome their comments. Frank's only solution is short-term – to liquidate – and that's not an option,” Snedeker said.

RBR/TVBR observation: Let’s detach from reality for a moment and assume that the board does as Martin suggests. A majority of the directors order Smulyan to sell off Emmis’ assets. He refuses. The board fires Smulyan. Smulyan, as the controlling shareholder, calls a special shareholders meeting and replaces the directors who fired him with new ones who won’t. He is reinstated as CEO and we’re right back where we started.

When you buy shares in a company where the founder or founding family hold super-voting shares that guarantee them majority control forever, you should know what you’re getting into. Disgruntled shareholders are making a lot of noise now at Emmis, Media General and Spanish Broadcasting System, to name just three, but all three have tiered voting systems and the folks who hold control are going to run things as they see fit.

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