A letter dated June 2nd has gone out to Emmis Communications shareholders informing them that they are being asked to tender their shares for $2.40 each in cash under the bid by CEO Jeff Smulyan to take the company private. The tender is scheduled to expire at 5:00 pm New York City time, on Tuesday, June 29, 2010.
“A Committee of Disinterested Directors of Emmis (the “Committee”), which does not include Mr. Smulyan or any non-independent members of the board of directors of Emmis, was formed on April 29, 2010. The Committee has unanimously determined that the Merger Agreement, including the Offer and the Merger, is advisable and fair to, and in the best interest of, Emmis and the holders of Shares, other than Mr. Smulyan, JS Acquisition, JS Parent, the Alden Fund and the Rolling Shareholders. ACCORDINGLY, EMMIS’ BOARD OF DIRECTORS RECOMMENDS THAT YOU ACCEPT THE OFFER AND TENDER YOUR SHARES TO JS ACQUISITION PURSUANT TO THE OFFER TO PURCHASE,” read the letter to shareholders, which was signed by the committee of the in dependent directors of Emmis, comprised of Susan B. Bayh, Peter A. Lund and Lawrence B. Sorrel. (JS Acquisition is the company owned by Smulyan which is making the buyout bid in association with Alden Global Capital.)
In solicitation materials accompanying the tender offer letter, the board recounted its evaluation of the buyout offer. At a May 19th meeting its financial advisor, Morgan Stanley, “discussed Emmis’ ability to meet certain financial covenants under its existing credit facility, in particular, following August 31, 2011 when the existing financial covenants were scheduled to revert to more restrictive covenants.” Although the bid by Smulyan and Alden had called for the board to submit the bid directly to shareholders without a recommendation under a special provision of Indiana business law, the board determined that it had time to evaluate the offer and that it would be better if it did make a recommendation one way or the other.
During the discussions in May, specifically at meetings on May 20 and 21, the committee of independent directors, acting after discussions with their outside legal counsel from Davis Polk, decided to ask Smulyan to increase the $2.40 offer. The response from Smulyan’s JS Acquisition was that it believed that it had fully priced the acquisition and that it was unwilling to increase the offer price.
Morgan Stanley delivered its written opinion on May 25th that the offer price was fair to the Emmis shareholders. At that May 25th meeting the special committee of independent directors endorsed the bid and then the entire board gave its unanimous approval to the going private transaction.
Emmis updated its operating budget projections in early May for the current fiscal year, running through next February. The revised budget modestly increased earlier projections for the current fiscal year. Radio revenues are expected to be $189.5 million, up from $177.6 million the past fiscal year. Publishing revenues are expected to be $65.7 million, up from $65 million. EBITDA for the entire company is projected at $41.1 million, up from $25.3 million.
Emmis projects that its domestic radio markets will grow revenues only 2% for the year, but that the Emmis stations will outperform their markets in most cases. Importantly, the Emmis cluster in New York is projected to grow revenues by 8% while the market grows only 3%. In Los Angeles, Emmis expects to be up 9% while the market grows only 3%. It is projected to pace right with the market growth of 2% in Chicago.
For Emmis’ smaller markets, the company expects to have 3% growth in Austin against 2% for the market; 3% growth in St. Louis against 1% for the market; 8% growth in Indianapolis while the market declines 2%; and 4% growth in Terre Haute while the market grows 2%.