Emmis buyout effort ended in frustration


Founder and CEO Jeff Smulyan had tried and failed once before to take Emmis Communications private, so he hung on to the bitter end this time as a shareholders meeting that began August 3rd was convened for the 10th time on Thursday, September 9th. But that was the end and the deal is now dead.

“I think he’s frustrated and a little angry,” Emmis COO/CFO Pat Walsh told RBR-TVBR. Smulyan himself was not available, due to the Rosh Hashanah holiday.

As a formality, the oft-delayed shareholders meeting was convened Thursday at 8:30 am. It ended with the announcement that the conditions for the buyout had not been met, so there was no vote and the related tender offers were terminated.

How close did the transaction actually get to closing, we asked? 

“We were as close as we had a deal – and one of the parties backed out of the deal,” Walsh said. “Now we go on to look for legal remedies for all of the e4xpenses that Jeff and the company incurred during this lengthy, difficult process,” he added. Emmis had stated earlier in the day that it was considering a lawsuit against Alden Global Capital for abandoning the deal.

Even though it is not longer Smulyan’s financial partner, Alden remains a significant investor in Emmis Communications. Alden owns over 40% of the preferred stock of Emmis and a smaller amount of common stock. Alden’s Heath Freeman has been a member of the Emmis board of directors since May, although Walsh says Freeman will resign now that the transaction has been terminated. Freeman, as has been the case previously, did not return a phone call from RBR-TVBR.

Although Emmis probably set the world record for the most times a company convened a single shareholders meeting, those 10 gatherings were for naught and Emmis now has to schedule its delayed annual shareholders meeting to, among other things, elect directors. The preferred shareholders will have the right to elect two members, although there’s no indication yet whether Alden or any members of the Preferred Lock-Up Group will offer nominees.

It was the Preferred Lock-Up Group which first knocked the going private transaction off track for its planned closing in early August. They had demanded better terms than the issuance of new high-yield bonds at 60% of the face value of their preferred shares. And since they held more than a third of the preferred shares outstanding, they had the power to block the two-thirds approval necessary for the deal to go to closing.

After weeks of negotiations Smulyan came to terms with the Preferred Lock-Up Group and had agreement from Alden as well, only to have Alden rethink its position and walk away at the end of August. That led to more negotiations as Smulyan sought to get his financial partner back on board. But that was unsuccessful and the buyout was officially terminated on Thursday (9/9) morning.

19,968,517 Class A shares had been tendered for the $2.40 per share buyout as of the September 8th deadline, but there will be no buyout and the shares are all being returned to their owners. Those shares are now worth considerably less than $2.40, since Emmis’ shares plummeted in Thursday’s trading. the stock closed at $1.22, down 42 cents for the day.

Only 418,503 preferred shares had been tendered by the 9/8 deadline and they also are being returned. The preferred shares fell $1.48 to close at $19.02 on thursday.

RBR-TVBR observation: Not only is Emmis preparing to head to the courthouse, but we can’t imagine that the law firms who make their living from shareholder class action lawsuits won’t be jumping on this. That might even include some of the ones who previously filed suits claiming the $2.40 offer undervalued the company. Those presumably will now be dismissed.