Emmis Communications CEO Jeff Smulyan announced after the market closed Friday that he had dropped his effort to buy out other shareholders and take the company private (8/4/06 RBR/TVBR Bulletin). [MIKE: need link] So, what happens now? The first reaction appears to be a stock price drop for Emmis shareholders. After closing Friday at 14.52 before the Smulyan announcement, Emmis shares dropped below 12 bucks in after-hours trading. As other broadcasting stocks had continued to fall, Emmis had gotten some price support from the 15.25 offer that was on the table - but no more. In fact, the soft market for broadcast stocks was cited in Smulyan's letter to the board and public announcement as a factor in his decision to withdraw the offer. Nonetheless, he said in his announcement that he still believes in the business. "I continue to believe in the long-term prospects of Emmis. I look forward to continuing to work with our phenomenal group of employees to build value in the Company's portfolio," Smulyan said in his announcement.
Read the official letter withdrawing the buyout offer.
August 4, 2006
Board of Directors
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle, Suite 700
Indianapolis, IN 46204
Ladies and Gentlemen,
ECC Acquisition, Inc., an Indiana corporation wholly owned by Jeff Smulyan ("ECC"), is hereby withdrawing the non-binding offer (the "Offer") previously made by ECC on May 7, 2006 to acquire all of the outstanding shares of Class A Common Stock of Emmis Communications Corporation ("Emmis" or the "Company") that are not beneficially owned by Mr. Smulyan at a cash purchase price of USD15.25 per share. The ECC letter to you communicating the Offer is hereby made null and void.
Despite good faith negotiations over the past three months, it has become clear that ECC will be unable to reach agreement with the Special Committee as to terms of a proposal that the Special Committee would recommend for submission to a shareholder vote. As you know, during this period there has been a significant decline in the broadcasting sector valuations and an increased competitive environment, as well as a down-turn in the financing markets.
I intend to file with the SEC an amendment to my Schedule 13D. A press release announcing the withdrawal will be issued after the market closes today. A copy of the press release will be sent to the Special Committee's counsel under separate cover.
I continue to believe in the long-term prospects of Emmis and I look forward to continuing to work with our phenomenal group of employees to build value in the Company's portfolio.
Very truly yours,
ECC ACQUISITION, INC.
Jeff Smulyan
President
RBR observation:
From the beginning there was shareholder discontent with the Smulyan offer. Lawsuits were filed claiming it was an attempt to buy the company on the cheap and considerable pressure was put on Emmis' outside directors to negotiate a higher price. After all, just a few months earlier the company had bought back a big block of its stock for 19.50 a share. But market conditions had deteriorated for radio and TV stocks, so the Smulyan offer was, at the time, a 13.6% premium over the market price. Things have only gotten worse since then. So, the offer is off the table and Emmis' stock will no doubt take a sizeable hit today. Then, it's back to business. Smulyan still has the overwhelming majority of his personal fortune wrapped up in Emmis, so he has strong incentives to work hard on getting the company through this tough market and, hopefully, some day see its stock price rise as radio stocks come back into favor. Meanwhile, he still has a couple of TV stations to sell - KGMB-TV (Ch. 9, CBS) in Honolulu, WVUE-TV (Ch. 8, Fox) in New Orleans - after which Emmis will truly be again a pure-play radio company, plus the relatively small regional magazine division.
