Preferred shareholders opposing Emmis buyout


Texas investor Geoffrey Raynor says in an SEC filing that he and firms affiliated with him plan to vote their preferred shares against the amendments necessary for Emmis CEO Jeff Smulyan to take the company private. Meanwhile, though, Raynor has been selling off his Emmis common stock for less than the $2.40 that Smulyan is offering if the buyout goes through.

Raynor’s Amalgamated Gadget owns 337,050 shares of Emmis’ 6.25% Series A Cumulative Convertible Preferred Stock, which is about 12% of the 2.8 million shares outstanding. That’s significant because approval of the amendments to the articles of incorporation require approval of two-thirds of the preferred shares. As you’ll read below, Raynor and other opponents hold more than the one-third necessary to block the deal. Approval by the common shareholders is a slam-dunk, since Smulyan himself holds enough votes there for passage. But while Raynor is opposed to the deal as its stands, the filing indicates that he and his associates are willing to discuss changes to the deal which could get them to vote yes.

Meanwhile, from May 13th to June 16th Amalgamated Gadget sold over 1.06 million shares of Emmis’ common stock at prices ranging from $2.16 to $2.29 per share. That left it with only the preferred shares, which were purchased for $342,105.75 on behalf of R2 Investments. When that purchase took place is not specified.

The buyout terms propose to swap those preferred shares for new 12% Senior Subordinated Notes due 2017. But that swap would be at 60% of the face value of the preferred shares. Even so, rough calculations by RBR-TVBR indicate that Amalgamated/R2 would receive over $10 million worth of the new notes for its $342K investment.

Raynor is not the only preferred shareholder opposing the deal offered by Smulyan and his financial backer, Alden Global Capital.

“On July 9, 2010, Double Diamond Partners LLC, Zazove Aggressive Growth Fund, L.P., R2 Investments, LDC, DJD Group LLC, Third Point LLC, the Radoff Family Foundation, Bradley L. Radoff, and LKCM Private Discipline Master Fund, SPC (collectively, the ‘Locked-Up Holders’) entered into a written lock-up agreement (the ‘Lock-Up Agreement’) pursuant to which, among other things, each of them agreed, subject to certain exceptions, to: (1) vote or cause to be voted any and all of its Preferred Shares against the Proposed Amendments; (2) restrict dispositions of Preferred Shares; (3) not enter into any agreement, arrangement or understanding with any person for the purpose of holding, voting or disposing of any securities of the Company, or derivative instruments with respect to securities of the Company; (4) consult with each other prior to making any public announcement concerning the Company; and (5) share certain expenses incurred in connection with  their investment in the Preferred Shares, in each case during the term of the Lock-Up Agreement,” the SEC filing reported.

In all, those entities hold 969,858 of the 2.8 million preferred shares, which is more than enough to keep the amendments from receiving the required two-thirds approval in the voting on August 3rd. They also left the door open for other preferred shareholders to sign-on to their lock-up agreement.

RBR-TVBR observation: Nobody said taking a public company private had to be easy. Jeff Smulyan already failed once in an attempt to take Emmis private, at a much higher price back in pre-recession 2006. While the Emmis board has endorsed the buyout this time around, it looks like the preferred shareholders are betting that they can force Jeff to sweeten the deal.