This time it is Arnhold and S. Bleichroeder Advisers LLC calling for the creation of a special committee of independent directors to work with CEO Jeff Smulyan on a "value-creating transaction." And the owner of some 4.6% of Emmis’ Class A shareholders wants the directors to let shareholders vote on selling the company to Smulyan, even if they don’t like the price.
The letter to independent directors Susan Bayh and Peter Lund states agreement with filing by other shareholders saying that "aggressive action" must be taken by the board of directors to benefit minority shareholders. Since Smulyan has voting control of the company via his super-voting shares, the latest letter says the only practicable solution is a going private transaction to sell the entire company to Smulyan "We strongly support the idea of a buy-out, funded in part by asset sales, that delivers a substantial premium to the current trading price of approximately five dollars per share," the letter says.
While a new offer from Smulyan might not value the company at what the independent directors believe the company is worth on the open market, the letter appeals to the board to put such an offer to the shareholders anyway – and let them decide.
"Arnhold and S. Bleichroeder are longtime shareholders of Emmis, and we value their input," the company said in a statement sent to RBR. It said the letter will be forwarded to its directors.
October 25, 2007
Ms. Susan Bayh, Director
Mr. Peter Lund, Director
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle-Suite 700
Indianapolis, IN 46204
Dear Ms. Bayh and Mr. Lund:
Our firm and funds that we advise are now holders of 1,414,704 shares of the Class A common stock of Emmis Communications Corporation ("Emmis"), or approximately 4.6% of the Class A shares outstanding. In addition, we have economic exposure to the equivalent of an additional 337,296 shares through derivative contracts, giving us economic exposure to the equivalent of an aggregate of approximately 5.7% of the Class A shares outstanding.
First, we wish to state our agreement with the view that we believe has been expressed in public filings by other Emmis shareholders that aggressive action must be taken by the Emmis Board of Directors (the "Board") for the benefit of all minority shareholders to realize the value inherent in the company’s portfolio of underperforming radio assets. Given the facts and realities of how Emmis is structurally impaired from a corporate governance perspective, we are convinced that the optimal, and probably the only practicable, approach to achieving this goal is to pursue a "going private" transaction with the company’s controlling shareholder, Jeffrey Smulyan. We strongly support the idea of a buy-out, funded in part by asset sales, that delivers a substantial premium to the current trading price of approximately $5 per share.
Second, we appreciate the difficult position the Board is in given the circumstances surrounding Mr. Smulyan’s unsuccessful effort to acquire the company last year. As a possible remedy to those concerns, we understand that Indiana law would permit the Board to enter into a transaction with a controlling shareholder such as Mr. Smulyan and put it to a shareholder vote for approval, without providing an explicit recommendation to the shareholders in favor of the transaction. The pertinent provision of the Indiana Business Corporation Law (IBCL 23-1-40-3(b)(1)) specifically exempts a board from recommending a plan of merger if "the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the plan." We believe both conditions, "conflict of interest" and "other special circumstances," would likely be satisfied if a proposal were received from Mr. Smulyan. With respect to conflict of interest, Mr. Smulyan has voting control over a majority of board members who would ultimately be recommending, or refusing to recommend, a transaction. Further, Mr. Smulyan’s ability to block alternative transactions, coupled with his publicly stated refusal to approve such transactions, results in the "going private" transaction as the only practicable alternative for the Emmis shareholders. In our view, this fact pattern clearly represents "special circumstances," which would permit the Board to pass such a transaction to the Emmis shareholders for approval without expressly recommending the transaction.
If the Board were to receive a "going private" proposal from Mr. Smulyan at a large premium to the current share price, we would urge the Board to defer to the shareholders, to the extent it was unprepared to recommend a transaction that might not deliver as much value as a liquidation or the sale of Emmis to a third party (scenarios that we regard as merely theoretical, considering Mr. Smulyan’s control position and his publicly stated refusal to agree to such other transactions). Given the sharp decline in the value of Emmis shares since last summer, when the Board chose not to provide shareholders an opportunity to evaluate Mr. Smulyan’s first proposal, we hope members of the Board would now agree that the balance of their fiduciary obligations tips in favor of giving Emmis shareholders that opportunity if a new offer is made.
As our representatives on the Board, the only Board members elected by Class A shareholders voting as a single class, you have a critical role to play here, and we are counting on your leadership. We encourage you to form a special committee to evaluate the strategic options available to minority shareholders and to work collaboratively with the controlling shareholder to help generate a positive result for minority shareholders relative to current trading levels.
Robert J. Hordon/Jason B. Dahl/Jonathan R. Spitzer
Arnhold and S. Bleichroeder Advisers LLC
RBR/TVBR observation: The question is, what could Smulyan offer now? Given the company’s ongoing problems, it won’t be the 15.25 per share that he offered last year, only to have it rejected by the board – and certainly not the 16.80 that was discussed during the failed negotiations. It sounds like Arnhold and S. Bleichroeder Advisers are ready to take about anything that’s a significant premium to where the stock price has been lately, but would other shareholders be as willing to take what they can salvage and run away licking their wounds?