Jeff Smulyan facing Emmis options


However easy it might have looked in April for CEO Jeff Smulyan to take Emmis Communications private, it has proven to be anything but. The buyout bid has prompted multiple shareholder lawsuits and a revolt by preferred stockholders who have sufficient votes to derail the deal. Now, what will Jeff do?

A state judge in Indiana will hear arguments Monday, July 19th on whether to grant a temporary restraining order sought by common shareholders to block the buyout, which they claim short-changes them. How soon the judge might rule is unknown, but the buyout tender, exchange offer for the preferred shares and votes to amend the articles of incorporation for Emmis are all scheduled to come together on August 3rd. It’s looking doubtful, however, that the date will hold.

Even if the courts refuse to get involved, a group of holders of the company’s preferred shares, led by Geoffrey Raynor and Daniel Loeb hold enough of the preferred shares (over one-third) to block the going private transactions – and they are holding out for a better deal. Just what they want hasn’t been publicly disclosed, but here’s an educated guess: more money.

As it stands, Smulyan and his financial backer, Alden Global Capital, are offering $2.40 per share for all common shares and new bonds worth 60% of face value for the existing preferred shares. Now, 60% may not sound so great until you consider that the preferred shares which were supposed to be worth $50 traded as low as $1.05 in March of 2009 – so $30 is a considerable premium. The common shares, which Smulyan is offering to buy for $2.40, traded as low as 24 cents in the past year.

As you would expect, Smulyan declined to comment when contacted by RBR-TVBR.

RBR-TVBR observation: The obvious solution is that Jeff can offer more and everyone will agree to the deal. After all, he once tried to buy the very same company for $15.25 per share and was turned down. But it’s not that simple.

First of all, Jeff is not taking the buyout cash out of his own bank account so any revised deal will have to pass muster with Alden Global Capital. Also, the US economy and radio station values are very different now than in 2006. Had he succeeded in that buyout offer he would likely be in deep doo-doo with his lenders today.

Just placating the preferred shareholders won’t necessarily seal the deal, since Smulyan still has to get common shareholders to tender at least a majority of shares, so they’ll want a sweetened deal as well.

The risk here is that the preferred shareholders will overplay their hand and demand too much. Jeff walked away once before. He could do it again. In that event, what would the market value of the preferred shares fall to?