Doing the Emmis preferred math


Emmis Communications has a tender offer under way to buy back $6 million worth of its own preferred stock in addition to the preferred shares it has already bought in privately negotiated transactions. But a group of preferred shareholders has banded together to try to keep Emmis from acquiring enough of the preferred issue to be able to modify its terms. Now it comes down to calculating the math.

There are 2,612,420 shares in existence of the 6.25% Series A Cumulative Convertible Preferred Stock. After cutting a deal with Alden Global Capital, formerly the largest holder, plus other transactions, Emmis now holds the voting rights to 1,484,679 Preferred Shares under swap agreements which, at least for now, avoids retiring the shares.

Emmis needs to control over two-thirds of the preferred issue to be able to amend the terms. Emmis is attempting to acquire from 385,604 to 428,571 shares in the “Dutch auction” tender set to expire December 30th. The shares it acquires will reduce the total outstanding and lower the two-thirds threshold for those 1,484,679 shares that Emmis gets to vote. So the target to be able to amend the terms is to reduce the total outstanding to 2,227,018. Can Emmis get there without coming to terms with the preferred shareholders in the lock-up group who are refusing to tender?

We calculate that there are 1,127,741 preferred shares not currently controlled by Emmis. The lock-up group holds 766,803 shares. That leaves 360,938 available from other preferred shareholders. That means that Emmis can’t get the 385,604 shares minimum it has targeted in the tender. Nor can it get to the 385,402 it would need to reduce the number outstanding and get over the two-thirds threshold. So the tender can improve the balance sheet for Emmis, but it won’t be able to amend the terms of the preferred issue unless it comes to terms with the lock-up group at some point.

[Editor’s note: The figures and explanation in the final two paragraphs have been corrected from an earlier version of this story.]

RBR-TVBR observation: What would it take to resolve this to everyone’s satisfaction? Our guess is money.