The original lock-up agreement by some big holders of Emmis Communications preferred stock had been scheduled to expire on January 31st – about a month after the dissidents had succeeded in limiting participation in the company’s tender offer to buy back preferred shares. But Emmis is also fighting back.
Zazove Associates, Corre Partners Management, Kevan A. Fight and DJD Group have now extended the lock-up agreement to April 30th. A fifth shareholder, First Derivative Traders LP, has now joined the lock-up group.
What has the dissidents worried now is that Emmis may issue more preferred shares. As a result of the recent buybacks and total return swaps through which it acquired the rights to vote 1,484,679 of the preferred shares without actually taking them back for cancellation, Emmis now has the right to vote 61.3% of the preferred shares outstanding. If it gets past 66 and two-thirds percent it would be able to change the terms of the preferred shares.
“In the future, Emmis may issue shares of Preferred Stock to a third party or third parties who may agree to vote their shares in accordance with the prior written instructions of Emmis. If Emmis issues 390,604 of the 452,680 authorized but unissued shares of Preferred Stock under such voting arrangements, it will have the ability to direct the vote of more than 66 2/3% of its issued and outstanding shares of Preferred Stock,” Emmis noted in an SEC filing.
What could that mean for the lock-up group?
“Although the Board of Directors of Emmis has not made any determinations with respect to issuing additional shares of Preferred Stock or amending the terms of the Preferred Stock, if Emmis is able to direct the vote of more than 66 2/3% of its issued and outstanding shares of Preferred Stock, it may then elect to, among other things, amend various provisions applicable to the Preferred Stock, including but not limited to: (i) reducing or eliminating the liquidation preference of the Preferred Stock, (ii) removing the ability of the holders of Preferred Stock to require Emmis to repurchase all or any portion of such holders’ Preferred Stock upon a change of control or certain going-private transactions, (iii) removing Emmis’ obligation to pay to holders of Preferred Stock the amount of dividends in respect of their Preferred Stock that are currently accrued and unpaid, (iv) changing the designation of the Preferred Stock from ‘Cumulative’ to ‘Non-Cumulative’ such that dividends or distributions on the Preferred Stock shall cease to accrue, (v) eliminating the rights of the holders of Preferred Stock to nominate directors to Emmis’ Board of Directors as a result of arrearages in dividends, and (vi) eliminating the restrictions on Emmis’ ability to pay dividends or make distributions on its common stock prior to paying accrued and unpaid dividends or distributions on Preferred Stock. Emmis may also choose to purchase or sell additional shares of its Preferred Stock in the future,” said Emmis in the filing.
RBR-TVBR observation: As usual it all comes down to money. So, we wait to see if Emmis is able to come to terms with the lock-up group on a price at which they would be willing to cash out. The threat to issue new preferred shares is obviously a potent weapon for Emmis.