Emmis Communications had some options for the exact structure of its investment in Merlin Media when it cut the deal to sell three Chicago and New York FMs to Randy Michaels’ new company. When the deal closed Thursday (9/1) it took $120 million in cash – right in the middle of the $110-130 million range – and the rest in preferred and common equity. Emmis has now spelled out its Merlin stake.
“The Company’s common equity interests in Merlin Media represent 20.6% of the outstanding common equity interests of Merlin Media and are subject to dilution if the Company fails to participate pro rata in future capital calls. The Company’s preferred equity interests in Merlin Media consist of approximately $28.7 million of non-redeemable perpetual preferred interests, on which a preferred return accretes quarterly at a rate of 8% per annum. The preferred interests held by the Company are junior to non-redeemable perpetual preferred interests held by the Investors of approximately $87 million, on which a preferred return accretes quarterly at a rate of 8% per annum. The preferred interests held by the Company and the Investors are both junior to a $60 million senior secured note issued to an affiliate of Merlin Holdings. The note matures five years from closing, and interest accrues on the note semi-annually at a rate of 15% per annum, payable in cash or in-kind at Merlin Media’s election. Distributions in respect of Merlin Media’s common and preferred interests are made when declared by Merlin Media’s board of managers,” Emmis stated in an SEC filing following the closing.
The preferred election by Emmis was toward the lower end of its $28-47 million range, as was the common equity stake, where the projected range was 20-35%. Emmis had to raise enough in cash to satisfy its senior lenders with a debt pay-down and that number turned out to be $120 million.
Under its agreement with Michaels and GTCR, the private equity company that is the primary owner of Merlin, Emmis gets to appoint one of the five members of Merlin’s board of managers.
RBR-TVBR observation: Just what that 20.6% common equity stake is worth depends on how well Merlin Media performs. Jeff Smulyan is betting that Randy Michaels is going to hit a home run with these reworked stations.