The battle between Emmis Communications and some major holders of its preferred shares has gotten the attention of the New York Times. The article in Friday’s (3/30) paper carried the headline “A Strategy to Vote Dead Shares.”
NYT writer Floyd Norris compared the Emmis strategy of buying the voting rights to preferred shares which have been cashed out under tax and accounting rules – via “total return swaps” – as analogous to Chicago’s famed dead voters who regularly cast ballots. There appears to be no precedent under Indiana securities law, but the NY Times article quoted a securities law professor in Delaware (where many more large companies are incorporated than in Indiana) as saying that the courts have to protect minority shareholders lest their shares become worthless and “no one will invest.”
As you would expect, Emmis does not agree with the criticism.
“This morning the New York Times wrote about the company’s dispute with its dissident preferred shareholders. Unfortunately, the story does not fully represent Emmis’ stance, which has not wavered: we offered a transparent process to all our preferred shareholders, including the few remaining holdouts. Holders of the vast majority of preferred shares saw the offer as fair and reasonable and accepted it,” the company said in a statement sent to RBR-TVBR.
Step one of a two-step process takes place on Monday (4/2), when Emmis shareholders will vote to create a bonus pool of 400,000 new preferred shares to reward employees. Approval is guaranteed, since Emmis CEO Jeff Smulyan holds majority voting control via his super-voting Class B common shares. The trustee will then assign the voting rights to Emmis.
Along with the voting rights already held under the swaps, Emmis will then hold over two-thirds of the voting rights to the preferred shares outstanding. At a second special shareholders meeting, yet to be scheduled, it will vote to strip the preferred shares of their dividend rights.
The convertible preferred shares were sold for $50 each in 1999, but most recently traded at $15.98. The NY Times story suggests that if the Indiana court allows Emmis to strip the preferred shares of their dividends they will be worth about two bucks each.